Saturday, July 25, 2009

why is there seemingly so little competition in the market for health insurance?

From the AP's Maureen Groppe in the C-J...

Increasing the government's role in health care would interfere with natural market competition and reduce consumer choices, critics of the idea say.

But by one measure, there's little competition now among health insurers with four companies dominating the country. The American Antitrust Institute says one or two firms dominate most U.S. cities.

A case in point: Indiana's largest insurer, Indianapolis-based WellPoint, controls 58 percent of the state market, according to the American Medical Association. WellPoint and the state's next-largest insurer, The HealthCare Group, control a combined 75 percent of Indiana's health insurance market.

The administration of President Barack Obama argues that a proposed public insurance plan run by the federal government would force private insurers to compete on price and value....

There's some competition and the government proposes to provide more. But two vital things are left unanswered and even unasked:

1.) What level of subsidy will the government insurance provide. The greater the subsidy, the more likely that the govt option gains more monopoly power than the current arrangement.

2.) Are there any govt policies contributing to the market concentration in the health insurance industry. That number seems relatively high to be "natural". It smells like something that the govt has had a hand in creating. If anyone knows any particulars, let us know!

Although there are more than 1,000 private health insurance carriers, 94 percent of the nation's metropolitan areas meet the federal antitrust definition of being highly concentrated, according to a 2008 survey by the American Medical Association. One insurer controlled at least 30 percent of the commercial market in most areas and controlled at least half the market in 44 percent of the areas.

These are odd numbers. How can there be 1000 carriers, but so little competition within any given city?!


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