Lack of Competition Could Cripple Cost Savings from Health Reform

New Orleans  The hope that the new Affordable Care Act (ACA), or Obamacare as it known, will reduce costs is based on the belief that there will be more competition by creating state insurance exchanges where all companies will participate.  This will force lower costs as the insurance companies try to win the business of all of the new shoppers coming onto the market with mandatory care requirements in force next year.  Looking more deeply though, there is increasing concern that the actual concentration in the local markets could throw huge hurdles in front of the hope of lower costs.

            An analysis by the American Medical Association (AMA), the doctors’ union, reports that a single health insurance company holds 50% or more of the market in nearly 70% of the local markets nationally.   In fact the same report states there are 10 states where one company has a virtual monopoly hold on issuing private healthcare insurance.   Those states are:   Alabama, Hawaii, Michigan, Alaska, North Dakota, South Carolina, Rhode Island, Wyoming, and Nebraska.  Every region of the country will feel some pain in pricing.

            Reading between the lines, a good deal of the ACA is premised on the fact there will be competition even in these monopoly and heavily concentrated markets by facilitating on-line shopping or by new emerging efforts, though how state insurance commissions will be ready to regulate these companies and new competitors is unclear, and in fact when you think about it, the private insurance companies have been very silent about what they are doing on pricing and placement.   Experts who believe new lower cost alternatives may emerge from doctors are also not taking into account monopoly problems in some areas where the shortage of doctors is an underlying reason there are existing monopolies in places like Wyoming, Alaska, Nebraska, North Dakota, and even Hawaii where my friend, Emmett Aluli is the only doctor on his island. 

            In fact with the in the initial rollout of ACA, prices may go up since so much of our hopes rest on private insurance carriers.  Many of their actuaries are working double time trying to calculate the risks and costs since they will be taking everyone and finally, and thankfully, no one will be excluded based on pre-existing conditions. 

            There may not be a “train wreck” coming as Montana Senator Max Baucus has warned, but there may be a very bumpy road until we can pave a smoother highway to better health in the future.


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