Public Option brings competition... where there isn't enough...

Health-Care Market Characterized By Consolidation, Not Competition

As Congress gets set to take up health-care reform, there's a crucial piece of data that hasn't received nearly the prominence in the debate that it deserves.

Defenders of the status quo on health care like to point out that a public option will destroy the system of robust free-market competition that currently exists.
Sen. Richard Shelby (R-AL), speaking earlier this month on Fox News, called President Obama's plan the "first step in destroying the best health care system the world has ever known." A public option, Shelby added, would "destroy the marketplace for health care."

But the notion that most American consumers enjoy anything like a competitive marketplace for health care is flatly false. And a study issued last month by a pro-reform group makes that strikingly clear.

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.

Far from healthy market competition, HCAN describes the situation as "a market failure where a small number of large companies use their concentrated power to control premium levels, benefit packages, and provider payments in the markets they dominate."

So extreme is the level of consolidation, in fact, that one former top Federal Trade Commission official working with HCAN has sent a letter to the Justice Department's Antitrust Division, asking for an investigation into the health insurance marketplace.

The problem is most acute in small rural states, according to the report. In Shelby's own state of Alabama, the biggest insurer, Blue Cross Blue Shield, controls 83 percent of the statewide market. There, and in nine other states -- Hawaii, Rhode Island, Alaska, Vermont, Maine, Montana, Wyoming, Arkansas and Iowa -- the two largest health insurers control at least 80 percent of the market. So much for Shelby's "marketplace for health care."

The report doesn't consider how this reality stands to affect the forthcoming congressional battle for reform. But extreme consolidation may actually be making it harder, not easier, to win support from lawmakers for a public option.

That's because insurers who control large swathes of a given market stand to see their bottom lines particularly threatened by the introduction of a lower-cost public option. So, in turn, they'll be particularly aggressive in pulling out all the stops to pressure lawmakers to oppose the plan. Given the healthy amount of campaign dollars that some wavering members take in from the major insurers, that's hardly encouraging.

Of course, the Senate is where the major legislative showdown will likely occur. So in some forthcoming posts, we'll be taking a close look at just which senators have taken money from insurers who control major percentages of the state-wide market -- and where those senators stand on the public option. Stay tuned...

Posted via web from Jim Nichols