Health Care Economics

Paul Krugman wrote, Health care is not a bowl of cherries.

"Both George Will and Greg Mankiw basically argue that we don’t need a government role because we can trust the market to work — hey, we do it for groceries, right? Um, economists have known for 45 years — ever since Kenneth Arrow’s seminal paper — that the standard competitive market model just doesn’t work for health care"

James Kwak adds, "lightly regulated” private health insurance is a fantasy, because the whole point of a for-profit insurer is to charge premiums that expect the expected payout under the policy; as a result, no sick person would be able to afford insurance. You don’t need adverse selection or moral hazard to explain this: if I know someone has an expensive form of cancer, I’m going to charge him $100,000 for health insurance, and he won’t be able to pay. The free market for health care is one in which sick people die, and smart people who ignore that point are being less than honest."

He also points to Krugman who points to digby who points out that in much of america, health insurance is already a monopoly. "The Justice Department considers an industry to be “highly concentrated” if one company has 42 percent of the market. In Arkansas — Senator Lincoln should take note — Blue Cross Blue Shield has 75 percent of the market. If you take government self-insurance plans out of the equation, it's higher. The state ranks as the ninth most concentrated in the country. Is it any wonder that insurance premiums have risen five times as fast as wages?"

Zachary Roth in TPM adds Health-Care Market Characterized By Consolidation, Not Competition:

"The report, released by Health Care for America Now (HCAN), uses data compiled by the American Medical Association to show that 94 percent of the country's insurance markets are defined as "highly concentrated," according to Justice Department guidelines. Predictably, that's led to skyrocketing costs for patients, and monster profits for the big health insurers. Premiums have gone up over the past six years by more than 87 percent, on average, while profits at ten of the largest publicly traded health insurance companies rose 428 percent from 2000 to 2007."

In 10 states, just one or two heath insurers control at least 80% of the market.

My own experiences tackle this from a different angle. I found it impossible to get enough information to make an informed choice on insurance plans. Are the doctors I want in the plan? Well it's easy to check for my primary care physician but I don't know what I might get in the next year and what specialty I might need and what specialist I might want. Blue Cross gave me a choice of several dozen plans and it was impossible to compare them because the information in the grid was mostly the same (100% or 80% coverage) but littered with footnotes saying this plan's deductible doesn't cover this care and this other plan doesn't cover this other care. And still I don't know what illness I might succumb to in the coming year to pick appropriately.

And while my current situation might be a little unusual, getting health insurance from your employer makes little sense to me. Businesses are hard enough to run profitably and health insurance costs are skyrocketing. No one wants to cut them but they have to. How many of you think your company chooses it's insurance company based more on the care you'll get (and that has to be averaged acrossed all employees) instead of the cost of the plans?