Saturday, March 20, 2010

Health Insurance Monopoly: Myths vs. Facts

Fact #1: "America’s Health Insurance Plans (AHIP) is the national association representing nearly 1,300 member companies providing health insurance coverage to more than 200 million Americans. Our member companies offer medical insurance, long-term care insurance, disability income insurance, dental insurance, supplemental insurance, stop-loss insurance and reinsurance to consumers, employers and public purchasers."

Fact #2: "About 55% of those insured receive their insurance from a “self-insured” employer, where the employer acts as the insurer, rather than from a traditional insurance company. These "self-insured" employers often hire other firms, including insurance companies, to help administer the plans (they handle paperwork and form networks with doctors and hospitals). While employees often naturally think that the insurance company named on their insurance cards is providing the coverage, employers determine the details of coverage – from benefits to what premium the employee contributes – and they are responsible for putting aside money to cover employee medical costs.

The self-insured market consists of thousands of employers acting as insurance providers and competing for workers based on the salary they pay and the benefits they offer. Over 900 companies handle the administration of self-insured plans, with fees typically running three to eight percent of the total cost of insurance, depending on the employer’s size."

Fact #3: Definition of Monopoly: "A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition. In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare."

Myth #1, From the White House: "The health insurers’ monopoly is so strong that they can continue to jack up rates as much as they like – even if it means losing customers – and their profits will continue to soar under the status quo."

Myth #2, from President Obama: "Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, just one company controls almost 90% of the market. Without competition, the price of insurance goes up and the quality goes down."

Fact #4: "Given that self-insured firms cover over half of the people insured in those states, the total market share for the largest five insurers would average closer to 30% than 75%."

Conclusion: How can an industry with 1,300 firms possibly be described as a "monopoly" (one seller)?

11 Comments:

At 3/20/2010 11:45 PM, Anonymous Lyle said...

If the market is defined as individual health insurance then the answer is a monopoly. If the answer is all health insurance the answer is not. Since one does not have a direct choice to enroll in one of the self financed plans except by changing jobs, its not clear that that provides an option for the self insured and small group market.

 
At 3/21/2010 12:45 AM, Blogger misterjosh said...

The Alabama "90%"er is a non-profit. How is the government going to beat a non-profit?

 
At 3/21/2010 2:25 AM, Anonymous Paul Lookman said...

Ever heard of a cartel? In can't be a coincidence that rates are more than twice as those in Europe.

 
At 3/21/2010 6:38 AM, Blogger W.E. Heasley said...

Lyle said...

“If the market is defined as individual health insurance then the answer is a monopoly.”

There is no empirical evidence to support your “notion”.

Paul Lookman said...

“Ever heard of a cartel? In can't be a coincidence that rates are more than twice as those in Europe.”

“Rates” would indicate insurance rates hence competition. In Europe many of the plans are tax based and no “rates” exist other than tax rates. The tax rate then yields a socialized medicine scheme mainly based on price fixing which then yields non-price rationing of one sort or another (time/quality). These plans are state run monopolies (beyond cartels).

Hence you are comparing a market price (USA) with a government intervention distorted tax price of Europe. Take the socialized medicine tax rate price, add back the cost of poor quality and the cost of long time lags to access medical care, and you would then find the true price of the European socialized medicine scheme to be roughly equivalent to the market price of the USA.

 
At 3/21/2010 6:42 AM, Anonymous Anonymous said...

You're correct, it's not a coincidence. It's because we go to doctors more then twice as much as Europeans and receive much better care, in much better hospitals when we do. We also spend more on food, TV's, cars and a myriad other things too.

 
At 3/21/2010 7:34 AM, Anonymous Anonymous said...

Obama said "Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies."

There is truth to that statement. Many states adopted a "patients bill of rights", which made it unprofitable to do business. Many insurance companies stopped doing business in these states, leaving very few companies. See NH as an example.

So the government pushed these companies out of the market, and then complained there isn't enough competition.

 
At 3/21/2010 9:54 AM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 3/21/2010 9:56 AM, Blogger sethstorm said...


There is truth to that statement. Many states adopted a "patients bill of rights", which made it unprofitable to do business. Many insurance companies stopped doing business in these states, leaving very few companies. See NH as an example.

Sounds like they just wanted to spite those states for calling out less-than-honest practices.

 
At 3/22/2010 12:20 PM, Blogger Ron H. said...

"Sounds like they just wanted to spite those states for calling out less-than-honest practices."

Wait, Sethstorm Am I to understand that you believe insurance companies operate on a system of SPITE?

"We'll show you, New Hampshire, we won't take any money from people in your state, because you're mean to us. Na! Na!"

Is that sort of how it goes?

 
At 3/22/2010 3:21 PM, Blogger randian said...

How can an industry with 1,300 firms possibly be described as a "monopoly" (one seller)?

When the attributes of the products being sold, and the price & terms under which they are sold, is by government fiat virtually indistinguishable between firms, it's a government-created cartel.

Unlike open-market cartels like OPEC, in a government cartel the firms can't defect, so there is little distinguishing the cartel from a true monopoly.

 
At 3/26/2010 9:29 PM, Blogger misterjosh said...

Paul, You're getting your statistics confused. Americans pay twice as much for health CARE than Europe (or anybody else for that matter). I'll grant you that this seems troubling at first, but then I found out that American doctors make twice as much as European doctors. Unless you want to change that fact somehow, you're not going to lower costs for Americans.

 

Post a Comment

Links to this post:

Create a Link

<< Home