Competition drives down prices and improves service, usually. The proof is now in that for health insurance competition does not reduce prices. The proof comes in a study from Health and Human Services (HHS) titled “Premium Affordability, Competition, and Choice in the Health Insurance Marketplace, 2014.”
Don’t let the headlines fool you. The headlines quote HHS Secretary Sylvia M. Burwell stating that health insurance competition leads to more affordable health care. The report published by Secretary Burwell’s department tells a different story. Reading the report it becomes clear that with enough data it’s possible to find a data point supporting the headline. In this case there is one specific scenario that supports the headlines. The scenario is called “the second lowest cost silver plan scenario” for a 27-year-old insured. In this scenario when a single additional supplier is added, a 4% decrease in price occurs.
Since not many of us fit the “second lowest cost silver plan scenario,” let’s look at what we can expect from our health insurance going forward. The report let’s us look past the headlines to find out what the reality is for people now covered, or soon to be covered, by Obamacare.
Was Adam Smith Wrong: Competition Does Not Reduce Prices?
Adam Smith was not wrong. Competition does reduce prices and improve service. The reason health insurance competition is not reducing prices is because the insurers are not truly competing. Instead what we are seeing is the direct effect of the narrow networks that are being carved out under Obamacare. Insurers are creating networks with so many exclusions that as other carriers enter the market they define their network to not overlap and not create competition.
HHS Understands that Under Obamacare Health Insurance Competition Does Not Reduce Prices
The report from HHS states “in the plan level models, the number of issuers does not have a significant effect on premiums in any metal level.” Yes, they know that Obamacare is not creating competition among insurers, or reducing costs. The report continues on to state “as the number of issuers increases, the number of plans offered also increases, which leads to a greater dispersion of premiums.” This greater dispersion of premiums is not increasing competition, it’s creating choices. Creating choices isn’t bad, but it isn’t achieving the objecting of containing escalating healthcare costs.
True health insurance competition would benefit consumers. When Obamacare passed we heard frequently how the fostering of competition would benefit consumers. In practice the opposite is happening through the evolution of the narrow network. Now we see in reports from HHS themselves highlighting that this phenomenon is both proven and understood.
Fostering competition among both service providers and insurers will significantly benefit consumers. Encouraging competitive markets needs to be the next step taken in health insurance reform.
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