With Washington placing insurers in their cross-hairs and proclaiming that there isn’t enough competition among insurers, I wonder if the public has thought about what more competition among health insurers might mean.
First, a few facts. The portion of the premium that is devoted to care (otherwise known as MLR or Medical Loss Ratio) runs between 78 and 82% of premium. You can find these numbers in the quarterly financial reports of the public insurers. These claims payments are a result of contracted reimbursement rates between the insurer and providers (doctors, hospitals, labs, etc.)
Back to the original question. Will more competition drive premium costs downward. If market power in terms of volume allows you to negotiate a better rate then on at least 78% of the bill the costs may go up instead of down with new entrants into the market. The insurers will not be able to negotiate the same favorable terms with providers as they are now. Unless you think they are keeping reimbursements artificially high … I doubt you could find a physician or a hospital that would agree with that.
Therefore the government must be counting on the reduction of the remaining 18-22% to not only be reduced, but to overcome any loss of market power on the contracting with providers. Since the insurers will be smaller, they will have less market power with all of their other providers of products and services as well — from phones, to facilities, and on an on.
Perhaps in this context competition isn’t such a good idea if your goal is to reduce costs.
Then again, perhaps what they are talking about at the Federal level is all of the costly mandates that the states put on insurance providers. Requirements for coverage types, lengths of stay and so on. So maybe the issue isn’t with private enterprise, but rather with government regulation.
What do you think a couple of thousand page health care bill is going to do to the volume of regulation?
Editor’s note: Both sides of this argument have their points. Literally, in the House and Senate bills that have come out of committee on health reform there are not what some are calling death panels. The issue arises when you start to knit several pieces of other legislation like language in the stimulus bill together AND you recognize that much of the implementation regulations will be written well after any bill is signed into law. These regulations become numerous and voluminous. The laws are left up to the interpretation of career administrators in Washington. They in turn create and vet for public comment regulations. So unless a law is absolutely clear, unintended consequences of the law are enacted into regulation. Read a recent article on this subject here: