Topic: Health Care
Psuedo Competition Within the Health Industry. Insurance, which can be extremely beneficial to the consumer, can also be used to their disadvantage in controlled markets. by Gene DeNardo
(libertarian)
Sunday, August 16, 2009
The most overlooked but blatantly obvious problem that any proposal to "reform" health care is confronted with is the use of "insurance" to fund health services that all citizens require. These services, such as periodic checkups and other preventive and maintenance type services are far beyond the normal market demand for insurance.
Insurance is transfer of risk. Fundamentally, it can be thought of as the taking of a small loss in order to avoid a larger, debilitating loss. The risk and cost of this large loss is "pooled" by the insurer. Each member of the "at risk" group pays a "premium", which is basically an averaged small loss, in order to prevent one or more of the group from sustaining the greater loss that would occur when the risk is realized. In this way, what would be a devastating loss to a one or a few of the at risk group, becomes a smaller, manageable cost to the entire group.
Certainly, catastrophic illness would fall under the umbrella of market type insurance in the medical field. But unlike any other market that I am aware of, the health care industry utilizes the concept of insurance to "fund" the excessive inflated costs of the entire health industry. Insurance is used to pay for fees and costs that are the result of monopoly control of markets and would not be affordable on the pay for service basis that is the standard payment method for goods or services that are needed by the majority of the population on a periodic basis.
With the aid of government intervention, the insurance industry is able to avoid payment for catastrophic occurrences. Government programs insure the most at risk, the elderly, young and those with limited financial resources, while commercial insurers reap the profits from those that are most healthy, least at risk and most capable of payment.
Still, you would think that in a normal market situation where this insurance abnormality was allowed or encouraged, the competition within the insurance market would be ferocious. Insurers would be competing to secure this low risk and high profit market and consequently premiums and cost would be kept extremely reasonable.
While this was true in the forties during the inception of this false market, the opposite is now true. The argument could even be made that the inflated costs prevelant within the industry are not so much a result of this pseudo insuring of marginal risk, but the lack of competition within the insurance segment of the industry itself.
This fact was made evident in the AMA report, "Competition in Health Insurance: A Comprehensive Study of US Markets". The report, in typical AMA fashion, is available free to its members but is not available online, except through purchase.
The study found that there exists little competition between health insurance providers in most US markets. Single insurers had market shares of 30% or greater in 95% of the regional markets and in over half of the markets, a single insurer had a more than 50% market share. [link edited for length]
The study also referred to the Justice Departments use of the Herfindahl-Hershman Index, [link edited for length]. The ratings were "over the top" [link edited for length] and reported 94% of the markets as "highly concentrated". This only confirms what market share already tells us; insurers are not "providing" a competitive environment for each other.
The AMA study also noted that 400 mergers had occurred between 1995 and 2005. This has been accompanied by what we are all aware of, cost increases that far exceed the bulk of the economy during that same time period. Premiums have increased at a rate four times faster than wages in the last nine years.
This is all taking place within what should be a highly competitive industry, given the insurance of low risk clients by the commercial industry due to government absorption of adverse risk patients.
It is important to understand the dynamics of the industry. Insurance providers are sellers of insurance. As such, the control of a majority share of a market does not necessarily guarantee a monopoly. If a provider has a 53% market share, he may still have to compete with several companies that hold the remaining 47% share. If they sell a similar product to the aggregate collection of consumers, they must market their product at a competitive cost, in order to gain or keep their market share.
And in the case of health insurance, all insurers in a competitive market would also compete for the margin of uninsured. If they can as a group or individually price their product low enough, they can entice some of the uninsured to carry policies.
What is so different about the health insurance industry is the role of the providers as "buyers" of health services. This is due, and this is an extremely important point, to the abnormal market conditions created through time that have facilitated the role of health insurers to pay for routine medical expenses instead of providing for transfer of catastrophic risk, which would include the payment of unusual medical occurrences that exceed the ability of the individual to pay. These catastrophic risks, normally the bread and butter of the insurance industry, are for the most part covered by government subsidized programs.
These unusual conditions have created a controlled market that allows commercial providers to act as primary purchasers of routine health care and maintenance. While it is said that 47 million Americans lack health insurance, this statistic also points to the fact that about 250 million Americans do have some form of health insurance. Even though 40 million are covered by Medicare, a government backed single payer system, many of those covered also have supplemental commercial insurance.
It should also be noted that those without insurance use a smaller proportional amount of care than those with coverage. This is true due to economic necessity, as many cannot afford extensive care and also to the fact that some are young and healthy and don't desire or require care. The replacement of first party payment with collective payment also goes a long way to encourage use of unnecessary services among the segment of the population with insurance coverage.
What is obvious from these facts is that the health insurance industry as a whole is purchasing the vast majority of health care in the United States and that it is drawing its funding for this purchase from the vast majority of the population.
To further intensify the situation, through the course of health insurance history and especially in the last ten years as shown by the AMA study, a few providers have come to control a majority share of the market in most regions. It is easy to see that a very small collection of providers are not only "selling" the majority of health insurance policies but are also "purchasing" the majority of health care services and products. This is an extremely unique situation in comparison to any other industry and it is at the core of our health care predicament.
Insurers have, in effect, control over both the supply side of the health care industry and the demand side. They are determining the demand by enlisting the majority of Americans under their policies, with terms underwritten by their employees, and they have control of the supply side by their enormous financial clout, pooled from the financial resources of the majority of American citizens, which enables them to dictate to the health industry what will be provided, how much of it will be provided and at what cost. Since there is control by a few providers, we must also allow for the great possibility of collusion between the industry and the insurers which can allow for the elimination of any competitive pricing and/or availability of services.
This enormous collective, which has been fostered and condoned by the Federal Government, is the greatest obstacle to any real "reform" of the health care industry. This embedded system is the common enemy of any free market solution or altruistic type social solution that attempts to bring necessary health care to all.
There is no solution in the cries of allowing the "free market" to work, when there is presently no free market we can allow to work. There is no chance of "affordable" health care to evolve when a proposed plan only calls for strengthening the existing conditions and positions of the status quo.
By the creation of this collective we have lost any real consumer control. Any freedoms we seem to have are rationed to us by the provider, with the cooperation and/or insistence of the medical industry. If the trend continues and the dominant providers attain an even greater market share, we will lose any choices we now have and the rest of the industry will also be forced to cave to any insurer demands. We will receive in theory "private" sector care, but the terms will be dictated more than ever by the insurer. Every step in this direction blazes the trail for that other directed health care system, government socialized care.
It is acknowledgement of this condition that can bring clarity to the issue. We do not have either a "free market" system or a "socialized" system. We have a controlled corporatist health care system. The programs and regulations of our government reinforce the insurance industry domination of health care and the collective nature of the system. We truly have a hybrid system that brings neither socialized care to all nor the choice and consumer advantages of a free market system.
The two "sides" that are voicing their opinions on the current proposals are merely arguing over the type and depth of industry subsidy that they believe should occur. One side is already satisfied with the existing level of subsidy and most surely have a decent policy in place. The other side wishes to increase the subsidy level. Other than the extension of the existing system to cover some that are now without policies, there is no serious talk of changing the system in either a free market or a social direction. Until we confront the true nature of the problem, there will be no solution.
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The views expressed in this
article are those of Gene DeNardo only and do not represent
the views of Nolan Chart, LLC or its affiliates. Gene DeNardo is
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1. Wait until someone gets sick, fire breaks out. We don't care swine flu & $2 trillion pandemic loss and invaluable lives, investments in vaccine cause deficit compared to big money after all.
And if we admit this common sense, in the end, we will join all of the socialist nations. Just wait until for-profit runaway devotes colossal investments of non-profit to preventive care.
2. If you wait and get ill, just keep eating and working, no rest, otherwise, you will go bankrupt. And if the insecurity damages your mental health and spreads to a number of different diseases, it will add to the deficit.
3. Under the advanced market theory, free market even includes arbitrary, illegal malpractices, no touch. In case runaway premiums drive the enrollees out, 4C + 2R (canceling, capping, cherry-picking, cash for special, rationing, rapid premium hike) guarantee multiple times as much profit, and backers are worrying too much about our loss later on, instead of the struggling, too. By the way, fair competition should begin with our unfair market value.
4. In terms of unnecessary tests, procedures, The more ,The better. We lose money when we embrace IT system and improve care in ways that reduce admissions. Please never set sights on the exemplary clinics in about 70 regions, as the game will be over easily.
5. We share the urgent need for redesign, as long as Just-Say-No and Slow Down to shout, disrupt are guaranteed.
We as financially conservative patriots urge and urge deficit-free (except for inaction & bankruptcy).
Or let's make one more insurer-friendly competitor, it will add to the inflation.
6. When we invest in sustainable energy, just ignore the savings from the equation while the sky is falling. If the economy is running smooth, go ahead, if not, in this economy.
7. More Cash and Better Quality (rank of 37th) are a tween, Hands Off. No Tax, No Saving, No debt. The entire world is awaiting the magic outcome.
8. Best friends, the envy of the world, still the uninsured & underinsured, disgrace all over the world. If someone as a family gets ill, left untreated, even though we are still the richest, just sing deficit.
How about " war on bad health " ?, like someone said.
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