On Health Care, Heritage Foundation Rejects Competition

competition.jpgIn a rather bizarre departure from so-called ‘free market’ principles, The Heritage Foundation is continuing to speak out against injecting competition into the health insurance market. Yesterday, Robert E. Moffit, director of the Foundation’s Center for Health Policy Studies, criticized President-elect Barack Obama for allegedly reneging on two key campaign pledges: 1) allowing Americans to keep “the health insurance they have today” and 2) offering those without coverage “the same kind of insurance available to members of Congress”:

The main problem is that Obama has proposed creating a new government-sponsored enterprise — a taxpayer-financed health plan, run by federal officials, that would “compete” directly with private health plans…It would feature comprehensive benefits like those available in the Federal Employees Health Benefits Program (FEHBP), the program that covers members of Congress, federal workers and retirees. It sounds reasonable, but there’s one little problem with using the FEHBP as a model: It offers no government health plan at all. The FEHBP promotes premium-saving competition among a wide variety of health plans, but they are all private plans, ranging from managed care plans to health savings accounts.

Moffit believes that public/private “competition” is unfair because it pits for-profit private insurers against a government program that need not turn a profit. The government will institute lower rates, taxpayers will assume liability, and private insurers, Moffit warns, will simply go out of business, pushing Americans out of their insurance plans.

But in Obama’s proposed insurance exchange, the elimination of medical underwriting will lower the administrative costs for private insurers and force companies to compete on quality, not risk. As health care economist Uwe Reinhardt explains, if public plans institute rock bottom rates that aren’t accepted by health care providers, “Americans having a choice of private plans alongside the public plan would not opt for the latter, which would then either whither away or have to raise fees until it is competitive in the market for enrollees.”

That’s how competition works. And its greatest benefit, as Moffit surely knows, is cost containment. Indeed, the Medicare program — on which Obama’s new public option will be modeled — “outperforms private insurance on costs and access even when compared with private plans that are regulated to ensure broad coverage, such as plans in FEHBP and Medicare Advantage,” suggesting “that simply replicating FEHBP on a broader scale—without public plan choice—would be unlikely to provide the long-term cost restraint essential for successful reform“:


Healthy competition lowers premiums in a way that a regulated exchange of private plans does not. And that sounds like something that even the conservative Heritage Foundation could support.