Public Option, Private Insurers and Competition

August 10th, 2009 | Healthcare Reform

As the misinformation, disinformation and overall lack of information in the debate on reform of the healthcare system mounts to Everest scale, the latest factoid requiring some clarification is the attempt to blame health insurance companies for the millions of uninsured.  One peculiar aspect of this blame game involves the suggestion that health insurers need competition from a government-sponsored alternative. I have not heard a single politician, reporter or interviewee mention the fact that for decades, the Department of Justice and Federal Trade Commission, irrespective of controlling political party, have effectively ceded monopsony control of insurance markets to the private health insurance companies.

In July 2004, the two Agencies released a report titled Improving Health Care: A Dose of Competition, which basically reinforced the 1996 and 2002 Statements. 

"Indeed, even if we assume physicians confront a monopsonist health plan that neither unlawfully acquired nor unlawfully exercised that power, authorizing physicians to engage in collusive conduct will not serve the interests of consumers. A health insurer with monopsony power is likely to impose quantity restrictions that will increase prices for consumers. If providers were to acquire countervailing market power, the result is likely to be further quantity restrictions – increasing the prices paid by consumers above those already imposed by the monopsonist."

Monopsonist refers to a situation in which there is a single buyer in a market, similar to a monopolist, which refers to a single seller in a market.

And, as always, don't take my word for it.  You can read about it in a Government Accountability Office report: Private Health Insurance: Number and Market Share of Carriers in the Small Group Health Insurance Market in 2004.

http://www.gao.gov/new.items/d06155r.pdf

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