Wednesday, October 26, 2011

Worst Comment of the Day: Not Understanding How Free Markets Work Edition

Consumerist has an article up about the lack of competition in the healthcare markets in various major cities. The commenters at the website are generally liberal, based on the comments that show up whenever politics can be injected into the conversation (which is way more often than one would think). And if there's one thing liberal commenters like to do, it's misunderstand how free markets are supposed to work.

According to the article:

The AMA study looked at commercial health insurance market shares and federal concentration measures for 368 metropolitan markets and 48 states and found the following:

*A significant absence of health insurer competition exists in 83 percent of metropolitan markets studied by the AMA.
Now, if you've ever studied the way insurance regulation works, you most likely would never write the following:
So much for capatalism and free-markets working their magic here.

Running a business so well that you can buy up all your competition is perfectly fine if your business is, say, beer. Not so much when your business is catagorically denying medical care claims to people while still increasing their premiums every year.
Something called crispyduck13 don't need no stinkin' research, however.

What crispyjackass13 doesn't know is that regulation helps to kill competition in the insurance market. Insurance companies aren't allowed to sell policies across state lines. Which means that if a New York insurance company wants to sell policies in North Dakota, it has to incorporate there. Some companies are big enough to do this (mostly the old players -- this is why there is a Blue Cross Blue Shield of North Dakota and a BCBS of Washington, and so on).

Add to that the twisted system we have that ties health insurance coverage to employers, where the large companies can afford to undercut local suppliers' premiums (because they can spread the cost around) and you have a perfect breeding ground for undercompetition (if not outright monopolies).

All regulations are not bad, and no one I know has ever said such a thing. But the converse is also true: all regulations are not good. The word deregulation has taken on mystical properties that somehow make it sound to certain people like no regulations, ever. Regulation is supposed to provide a level playing field where companies can compete on things like services and cost. Current healthcare regulations are designed to throw up roadblocks to competition. Healthcare costs go up as a result.

This is what I wrote back in 2009:

First, end employer-based healthcare as it currently exists. I say this as the recipient of what may be the best employer health plan in America. I don't pay for jack. My daughter was on antibiotics for almost two years as an infant due to a medical condition that couldn't be corrected until she was two. I never paid a dime. Pharmacists used to run my insurance information multiple times because they thought it was a mistake that the amount due kept coming back zero. No co-pay, no deductible. My daughter ended up needing two week-long hospital stays, one of which included the surgery. Out of pocket I paid zero. I tell you this not to brag, but to show you that what I am advocating would cost me some kick-ass coverage.

The downside to this is that I am disconnected from the cost of healthcare. My decision to go to the doctor is not based on whether I really need to go. My employer picks up the tab, so why not go? Maybe I'll score some percodan for my acute back pain! In all seriousness, I don't go to the doctor for every little thing. However, it's more a function of stubborness and having better things to do with my time. The reason I don't go unless I really need to should be that I don't want to waste money or file an insurance claim that could negatively affect my rate for something trivial.

Right now companies use healthcare as a benefit. The coverage comes in lieu of more pay. I advocate companies paying more in direct compensation, allowing the employee to use that money to purchase their own coverage. This has the benefit of letting the individual make decisions about their healthcare based on direct knowledge of the cost. No more going to the emergency room because you have the snifles. Now you would have to decide for yourself if you want to spend the money on elective visits. You'd pay your own premiums and make decisions accordingly. Right now people with coverage like mine go to the doctor for all sorts of minor things that normally would handled through rest and over the counter medicines. Why not? The company's paying for it. When healthcare is "free" for everyone you can expect the same mindset on a national scale.

This would also address another problem. Right now, insurance companies bend over backwards to make companies happy. They work with hospitals to get reduced rates on procedures, office visits, and prescriptions because the company represents huge numbers of insured. Think of it like a bulk discount on health care. Those costs get made up somewhere. In this case, "somewhere" is a town populated by individuals who buy health insurance without the benefit of a corporation negotiating on their behalf. If health insurers were competing for individuals instead of companies, the same forces that exist virtually everywhere else in the marketplace would take hold.

You want cheaper healthcare costs?

Step 1: Decouple healthcare from employers. Let consumers get a feel for how much healthcare actually costs.

Step 2: Let insurance companies compete like any other business; meaning, under regulations that only level the playing field and ensure fair competition.

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