For more evidence for why the free market does not work in health care, look no further than yesterday’s Los Angeles Times article on insurer consolidation. According to the paper, “speculation has run rampant that some of the nation’s biggest health plans may be looking to consolidate, including a possible takeover of Humana Inc. by Aetna Inc., as well as UnitedHealth Group Inc.’s interest in Coventry Health Care Inc”:
Already, 1 in 6 metropolitan areas in a 2008 study of more than 300 U.S. markets is dominated by a single health insurer that controls at least 70% of consumers enrolled in health maintenance organizations or preferred provider organizations, according to the American Medical Assn.
Insurers argue that greater consolidation allows them to negotiate for cheaper prices with providers, but the recent growth in mergers has failed to lower premiums. In fact, while “there have been over 400 health care mergers in the last 10 years,” premiums have risen “nearly eight times faster than average U.S. incomes.”
Large insurers have little incentive to bargain for lower prices. As the Urban Institute explains, “smaller insurers do not seem to compete on premiums to gain market share but rather seem to follow the pricing of the dominant insurer.” In fact “competition in insurance markets is often about getting the lowest risk enrollees as opposed to competing on price and the efficient delivery of care.”
A public health plan could certainly reorient the competition towards quality of care and force insurers offer to lower premiums. But as CAPAF Senior Fellow David Balto pointed out in a recent Congressional testimony, greater enforcement of antitrust laws is no less important to injecting competition into the health insurance market.
During the Bush administration, however, “the Antitrust Division embraced a minimalist course, largely trying to reduce the scope of enforcement and the use of antitrust in private litigation.” “In the seven years of the Bush administration, all non-merger enforcement actions have involved health care providers, with no enforcement involving health insurers,” Balto said. This approach has contributed to greater insurer concentration, “more anticonsumer insurance provisions, greater payment delays, less coverage and poorer service.”
For more on how the imbalance in health care enforcement can be corrected, click here.