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Can insurers use monopoly pricing under health-care reform?

"If insurance companies know people will be forced to buy policies, why would they lower premium prices?" Asks eegeterman over Twitter. "Why wouldn't they RAISE prices?"

I've been hearing this a bit today, so let's talk it through. In a world of one private insurance company and an individual mandate, it makes perfect sense. In a world of exchanges, with a dozen competing insurance plans, including national nonprofits, it doesn't.

Imagine that Blue Cross Blue Shield prices according to this monopolist logic. Their policy would normally cost $11,000. But people have to buy in, right? So they price at $13,500. For, say, Kaiser Permanente, whose policy costs $10,500, this is an opportunity. The market leader just jacked their prices up. So Kaiser begins advertising aggressively. Our policy, they say, is $1,500 cheaper than "our competitor's plans." The next year, people log onto the insurance exchange Web site to confirm their insurance plan for the year. Scrolling through the options, they notice that BCBS is way more expensive than Kaiser, or frankly, than everyone.

Maybe that's because Kaiser is worse? But consumer ratings, which are now available, show that Kaiser has a comparable satisfaction rating. Maybe it's because BCBS offers more? But no, the insurers have to list their benefits in a standard way, and it's pretty clear that BCBS isn't giving you more for your money. Ten minutes later, BCBS has lost a customer and Kaiser has gained one.

That's the market's solution to this problem. But the exchanges actually have a fail-safe solution, too. Rewind the tape to BCBS's decision to jack up premiums. Imagine that BCBS insures 420,000 people in California's exchange. As directed by law, they duly submit a notice to the Exchange Board saying they're increasing premiums. The exchange sends a letter back noting that underlying health-care trends don't justify that increase, which they're allowed to do under the law. BCBS says it doesn't care. The exchange, which doesn't much feel like being bullied, says fine, you're decertified. BCBS loses more than 400,000 customers, and has to reapply the next year.

And then, of course, there's the excise tax. Jack up your prices enough and suddenly you're paying a 40 percent surtax on the plan you're offering. Now you're way more expensive than the competition, and you're hemorrhaging customers.
Health-care reform isn't creating a monopoly market. There are other industries where people need to patronize some for-profit company. Food, for instance. But if there are a variety of companies competing for customers, monopoly problems don't emerge.

Under health-care reform, there are at least three bulwarks against the monopoly-profits scenario: Inter-insurer competition, regulators, and the tax on excessive premiums. Two of these mechanisms don't exist in the current market. One -- the market itself -- is much weaker and more opaque, and individuals have a far harder time navigating it.

At this point, I should have a macro on my keyboard for this concluding line: Is it perfect? No. Is it good enough? Maybe not, even. Is it better than what we have?

Absolutely.

Update: Some have responded that this might all be well and good, but in some states, insurers already have near-monopolies. This is true, though it's not true in most states. But the point of the exchanges is that those monopolies are easier to break. Right now, it's very hard to switch insurers. It's hard to compare plans. Hard to shop for new plans. Hard to figure out whether one plan is better than another. And in a lot of states, there aren't many insurers offering plans.

Not so in the exchanges. It's easy to shop, to compare. The benefits are listed in a standardized format and accompanied by consumer ratings. Add in the presence of national plans, both for-profit and non-profit, and you should see a lot more competition. And if there isn't much competition, a state can link its exchange to that of its neighbors. Delaware might not be much of a market, but Pennsylvania is. That may not reduce the stranglehold a single insurer has over existing businesses, but the exchanges can only serve those who can access them. That's why I've long argued the importance of opening them up to larger employers.

For all that, it's still possible that the exchanges won't be sufficiently competitive, and we will want to do more down the road (like opening them!). But, again, it's a lot better than what we have now.

By Ezra Klein  |  December 17, 2009; 5:13 PM ET
Categories:  Health Reform  
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Comments

Thanks for this Ezra. I've been arguing this point in a much less eloquent manner for a few days now. It answers the one real argument coming from the left on why a liberal wouldn't want to vote for this bill.

Posted by: etdean1 | December 17, 2009 5:32 PM | Report abuse

I can see the Blue Cross vs. Kaiser example acting as one reasonable cost control. That kind of competition might control costs, in some cases, maybe. So let's say case granted there.

However, the regulation example only works in a world where regulators regulate and that, as Ezra is fond of saying, is not the world we live in. The idea that some regulatory bureaucrat would take significant action against a powerful insurance company like Blue Cross for posting a rate increase is pure fantasy. Show me a counter-example equal to the countless cases of U.S. regulators willfully not doing their job and I'll shut up.

Posted by: andrewbaron78 | December 17, 2009 5:40 PM | Report abuse

Would insurers be able to offer plans outside the exchange? My fear is that they would offer plans outside the exchange to avoid the regulations. That way they can attract all the young, healthy people and leave the sick and the old for their competitors on teh exchange.

Posted by: nathanpunwani | December 17, 2009 5:46 PM | Report abuse

Would insurers be able to offer plans outside the exchange? My fear is that they would offer plans outside the exchange to avoid the regulations. That way they can attract all the young, healthy people and leave the sick and the old for their competitors on the exchange.

Posted by: nathanpunwani | December 17, 2009 5:47 PM | Report abuse

What REALLY confuses me about all of these liberal anti-health care reform arguments now popping up is, did they REALLY think the super-weak public option in the House bill would have been the magic solution to all this?

Posted by: Chris_O | December 17, 2009 5:48 PM | Report abuse

Ezra,
You put far too much faith in these regulators. Why will they be any different than state-based auto insurances regulators which regularly rubber-stamp requests for rate increases? They may even wind up being the same people!
Also, given the anti-trust exemption enjoyed by the industry why wouldn't BCBC and Kaiser jointly decide to raise rates?

Posted by: TXAndy | December 17, 2009 5:52 PM | Report abuse

Chris_O:

I'd like to see this example written with a bad regulator and a weak public option. If you also imagine dumping of sick people onto the public option, you get the public option prices always increasing providing instant credibility for all rate increases less than the public option rate.

Posted by: windshouter | December 17, 2009 6:03 PM | Report abuse

This may be HCR 101 sorry but something i've never quote gotten and related to this post. Is it a national exchange or isn't it? Will a person in Wyoming have the same number of options as a person in Pennsylvania? I'm assuming the answer is no, based on arguments I hear regularly, but am unclear how the exchange will work - or is national - otherwise. If they don't have the same number of options, and residents of one state has significantly fewer options, how does that impact your confidence that monopoly pricing isn't a concern? (I'm all for it either way - would be nice to deal with a different set of problems for a change, and not the fact that nobody can afford insurance and only healthy people can get it anyway. If it's a big enough problem, we will at least finally have a mechanism in place to address it.)

Posted by: Art27 | December 17, 2009 6:05 PM | Report abuse

and how would the regulators or the exchange administrators deal with moving 400,000 people out of BCBS and into another (or many other) plans? I imagine lots of people, and many employers, would be pretty damn angry about that. After all, if you like your insurer and your doctor, health care reform WILL NOT AFFECT YOU.

Posted by: andrewlong | December 17, 2009 6:05 PM | Report abuse

This might be true in an alternate universe. In our universe, comparing insurance plans is carefully designed to be apples to oranges. You never have two equal options at different prices, you always have a complex of variations between them, with all kinds of different cost sharing, limits, coverage, etc. differences ... as well as different prices.

Many of the tradeoffs you have to make are based inherent unknowables -- what risk to have this coverage limit on this disease vs risk of another disease with different coverage?

Businesses spend a small fortune trying compare them to change, generating plenty of business for the insurance brokers who compile their own presentations of the differences.

Posted by: willNeuhauser | December 17, 2009 6:08 PM | Report abuse

My question is what the current state of eligibility for the exchanges will be. Isn't access still restricted to the self-employed and those who work for small business that don't provide health insurance. For this to be a decent bill, progressives need to fight to open access to the exchanges to anyone. Also, include the Wyden amendment that gives employees the right to receive a voucher worth 80% the cost of their corporate plan to use in the exchange. This and closing loopholes in the regulation (I, too, am worried insurance companies will exploit loopholes and regulators will be unwilling or unable to hold them accountable). Then, and only then, will we have a decent bill.

Posted by: catlike1 | December 17, 2009 6:09 PM | Report abuse

@TXAndy:
"You put far too much faith in these regulators. Why will they be any different than state-based auto insurances regulators which regularly rubber-stamp requests for rate increases? They may even wind up being the same people!"

The states already do this for health insurance today. They deny rate increase all the time, and the insurers need to justify any increase with underlying trends and claim experience. This is why insurer profits are both small and not increasing.

"Also, given the anti-trust exemption enjoyed by the industry why wouldn't BCBC and Kaiser jointly decide to raise rates? "

Wouldn't this already be happening? Where is your evidence of any collusion? We don't collude, we compete.

Posted by: ab13 | December 17, 2009 6:12 PM | Report abuse

I'm not sure what's so hard about changing insurance or comparing options. I used an online portal that was super easy to compare and contrast pricing and benefit schemes, and once used it to change my insurance when rate increases in my first choice seemed out of whack. It was pretty simple. The health exchanges proposed in the bill have lots going for them - especially government standards they must meet to be listed at all. I understand that in some states there aren't many options, but really is it that hard to compare the ones you do have? Probably ignorant to the true concern here, but that argument has never done much for me. What sucks isn't finding them, it's how much it costs, and what all they can do to you once they've got you.

Posted by: Art27 | December 17, 2009 6:14 PM | Report abuse

Ezra, I do wish you could get this message out to the Ed Schultzs and Olbermanns of the world. They are out there, along with Dr. Dean, saying just the opposite. Complaining that there would be NO regulation of health insurance. That there is NO cost containment. That this is NOT reform at all, etc. The blogs are full of misinformation about what is in the bills and what is still being discussed. I keep asking people, Have you read the bills? Some even have the nerve to say they don't need to read the bill because Howard Dean told them what to think. OMG. I'm depressed.

Posted by: LindaB1 | December 17, 2009 6:17 PM | Report abuse

Ezra :

I get the impression from reading Bruce Webb over at Angry Bear that at least one of the bills under consideration contains a provision that sets a temporary floor for the Medical Loss Ratio (MLR) of the participating insurers. Is this so? Is it likely to survive?

Such a provision would go a long way toward convincing me that the containing bill is worth passing, even worth fighting for.

Posted by: joelhanes | December 17, 2009 6:23 PM | Report abuse

Joelhanes -- yes there is discussion going on right now about this MLR - Rockefeller wants it to be 90 but the CBO says that would raise the cost of the plans too much, so likely to be 85 for the individual market and maybe 80 for small groups?

Posted by: LindaB1 | December 17, 2009 6:31 PM | Report abuse

Chris_O,

No, the weak public option was never something that made a lot of sense.

It's a statement about just how much influence the industry yields that even a badly circumscribed and handi-capped public option couldn't get through this Congress.

All the more reason to be skeptical about the ways that consumer protections will be written and enforced.

Posted by: JPRS | December 17, 2009 6:49 PM | Report abuse

Does an insurer with 25 million members care about putting its pricing on the line to keep 400,000?

Posted by: tomtildrum | December 17, 2009 6:50 PM | Report abuse

Hi Ezra - thanks for this post. Your argument is fine, but it makes one major assumption that regulators will regulate effectively. That's not necessarily a given, and more often than not I'd say it depends on which party is in power. The financial mess of this decade was largely because Bush came in with a deregulation frenzy - the sort that let AIG, the world's largest insurer, be regulated by a shockingly weak organization (the Office of Thrift Supervision, or something similar to that).

You can bet insurance companies would pay big money to loosen exchange regulations and rip off the customers therein. I'm guessing based on the health care reform process that politicians wouldn't put up much of a fight.

Posted by: kmani1 | December 17, 2009 7:03 PM | Report abuse

And when my rates go up, will I be able to go on the Exchange and enroll in a new policy the same day? Or do I have to wait for a year or the rest of the year, or whatever?

Posted by: Melinochis | December 17, 2009 7:16 PM | Report abuse

you're full of great posts today ezra, thank you!

Posted by: schaffermommy | December 17, 2009 7:19 PM | Report abuse

Also, BTW, for those who are saying that the PO was weak all along so why are people so fixated? First, we were aware it was weak, in the form it was in at the point that it existed. The house version was stronger and lots of people, including Obama, were talking about "fixing things in conference". They were most definitely holding out that hope. Then, even if what ultimately came out was weaker than we'd have liked, it still, at minimum, represented that starting point Ezra and others are so fond of mentioning. It's the difference between legislation that offered the chance to build on an alternative to the private insurance companies, and legislation that does not. It's the difference between the possibility of real competition, and the present lack thereof.

Further Ezra's examples above are dependent on a couple of assumptions. One is that regulators will regulate. Hmm, where have we heard that before? Why, the financial industry has all kinds of regulatory mechanisms that were just exemplary, right? That worked out, didn't it? And hmm, when Bush came in he deliberately weakened the ability of a variety of agencies to actually perform their oversight functions. But THAT will never happen again. Especially since we know the Dems are so skilled at being in the majority that they'll retain the majority for years!

Posted by: Melinochis | December 17, 2009 7:29 PM | Report abuse

Why would Kaiser not raise their rates to $13,000. They could make the same argument about costing less and make $2,500 per person while doing so?

Posted by: williamcross1 | December 17, 2009 7:34 PM | Report abuse

I'm kinda curious...what would it take, Ezra, for you to oppose this bill? Is your only criteria "better than the status quo"? What would have to be gutted for you to say the bill shouldn't be passed?

Posted by: jt636 | December 17, 2009 7:43 PM | Report abuse

Thanks Ezra,
You definitely help keep the sanity in this maddening debate.

I have long been arguing (on Dkos comment threads of all places!!) that the current freak-out by progressives is really about wanting a clear cut ideological victory that was firmly hitched to a Public Option, even the House bill version, the sum of whose policy parts did not warrant such an ideological investment.

You have pointed them out over the course of this debate very well:
a) Why were the mandates structurally alright in the bill with a public option and not okay without a PO, considering how tiny the PO was. Mandates are mandates regardless (and many of today's critics were fine with the mandates in Edwards' and Hillary Clinton's platforms.

b) The argument against insurance companies charging 3x for older patients in this bill. But currently they charge 11x

c) Whatever we think of the palatability of this bill, does anyone really think these weasely congresscritters will come back to this bill anytime soon to get it through Reconciliation as Gov. Dean thinks, after this much rancor we are seeing?

Anyway the fracture in the party is real and President Obama needs to throw progressives some unequivocal meaty liberal legislative or Executive Order bone soon. Very soon. Morale needs to spring right back in time to fight the wingnuts and teabaggers. People need some rallying battle cry.

Posted by: zizi1 | December 17, 2009 7:48 PM | Report abuse

So, Ezra, when you write insurance companies "... duly submit a notice to the Exchange Board saying they're increasing premiums. The exchange sends a letter back noting that underlying health-care trends don't justify that increase, which they're allowed to do under the law. BCBS says it doesn't care. The exchange, which doesn't much feel like being bullied, says fine, you're decertified. BCBS loses more than 400,000 customers, and has to reapply the next year." Does that mean 400,000 people have to find new health insurance because their provider has been decertified? If so, what's the timeframe?

What if a person is in the middle of chemo treatments and their provider gets decertified?

Has there ever been an example of an exchange or government agency telling an insurance company that "underlying health-care trends don't justify that increase"? If so, what was the result?

Are CEO salaries included in the definition of "underlying health-care trends"?

Posted by: gregw571 | December 17, 2009 7:55 PM | Report abuse

We are not going to be allowed to buy from the exchange if we are offered insurance from our employer. We are forced to buy into a bad plan at work. You folks have no answers for this.

BTW, there are plenty of cases where prices are manipulated in the free market what makes you think insurance companies aren't going to keep their policies around the same price? It happens now in other markets. Gas goes up at one station it goes up at all the stations. A loaf of bead at one store costs about the same at another.

Posted by: jbou891 | December 17, 2009 8:37 PM | Report abuse

I don't understand. How does raising it to 90 raise the cost of the plans? Shouldn't it lower it?

Posted by: Dollared | December 17, 2009 8:48 PM | Report abuse

2014. the exchanges don't start until 2014. That's three election cycles before the exchanges matter to the voters. It's like the RSCC is running the policy shop for Obama.

Posted by: undisclosedangler | December 17, 2009 10:53 PM | Report abuse

Ezra,

I get the sense that this bill is going to change health insurance more than most people realize.

1) If the 'bronze standard' is set to pay 60% of health costs (and serve as the subsidy baseline), AND
2) there are manageable 'out-of-pocket' caps, AND
3) preventative services are free, AND
4) the policy is affordable, THEN

These policies are not paying a very high percentage of the costs for the guy who occasionally gets a test or breaks his arm -- or, what I call most of us. For that guy, he'll pay a huge premium and be disgusted when he occasionally use his insurance.

Politically, that is beyond stupid. And, what's more obnoxious to me is that it is built on the right-wing fallacy that all of our problems are utilization. Is that where you see this? Is utilization the problem here, and if so, is it the fault of the consumer (or the dr padding the bill)?

Utilization creeds have been the only way to 'blame the user' not the system. And, they've been used well. 'Cadaliac plans' and 'gold plated plans' paying for 'cosmetic surgery' are all blamed -- while the gouging in med part d goes unmentioned by the elite class. The sell being these few good plans are consuming all our resources. It's all bs, of course.

Put simply: we pay way, way to much per unit of care compared to anyone else. We do not visit dr's more than everyone else. So, we're going to fix this by making it hugely punishing to check on something your worried about? It's a total give-in to the right wing. They get to keep the same money and do less for us -- vs the ideal policy that would fix per unit costs and allow people to get care.

I can't understanding 'fixing' health care by making its use punishing, especially when that's just not the problem.

But, folks, if you have a plan that pays 60% and a low max out-of-pocket, your basic coverage is swiss cheese. It's just a basic matter of numbers. This means if your insured, get a $3,000 cat scan -- you're on the hook for more than $1,500.

Please tell me if I'm wrong, Ezra.

Posted by: rat-raceparent | December 17, 2009 10:57 PM | Report abuse

I feel like this might be overoptimistic, as some have said-although it would be great if this kind of competition actually took place. Things I can see going wrong in this scenario:
a-prices get jacked up, regulators turn a blind eye. This seems the most likely.
b-insurance companies find some kind of accounting loophole which allows them NOT to report changing prices by saying that it's inflation, or something.
c-insurance companies compensate for not being able to jack up prices on the exchange by jacking up prices that much more outside the exchange-i.e., in work-based insurance.
d-insurance companies just decide not to enter the exchange at all if it means they'll be subject to any kind of reasonable oversight (similar to the reaction of Wall Street to the bailouts).
Exchanges fall apart because no insurance company will join them, or because they insist that rules be individually negotiated and bent before they do join, and we end up with an individual mandate and no oversight.
e-huge backlash against regulators in which Repubs yell about how they're taking away the free market, etc etc, conservatives get stirred up as usual, regulators have yet more incentive not to regulate, which they didn't really want to do anyway, because it's a bad political move to be up against any corporation.

Any reason to believe these won't be the exact results of this bill, based on past experience?

Posted by: chanakf | December 17, 2009 11:23 PM | Report abuse

Two points:

1. Kaiser isn't really a good choice for this exercise because KP has fundamentally different objectives from BCBS. Kaiser is a _provider_. It isn't trying to increase subscribers to increase profits; it's trying to increase the number of people with good care. That means it doesn't want to grow faster than it can meet the needs of its subscribers. It wouldn't be in Kaiser's interest to lower its premium prices too much lower than competitors just to overburden its facilities.

2. A companies that price their products below their costs do not compete with anyone; they go out of business. If company A has the lowest negotiated provider rates in an area, that means that other companies have higher costs...which means they aren't in a position to charge lower premiums.

Premiums aren't pulled out of the air; they reflect the company's costs. Insurance companies don't "jack up" prices just because they feel like it; they increase prices because their costs rise. Insurers compete on price by reducing coverage.

Posted by: Athena_news | December 18, 2009 12:05 AM | Report abuse

Excellent post, Ezra. I'm feeling so much better reading your blog, there are a few realists left in this world. Thanks

Posted by: LiberalForReal | December 18, 2009 12:12 AM | Report abuse

Ezra:

The only market over which the regulators have control is the the insurance sold through the exchanges, which will be accessible to only a very small percentage of the population. In fact, if the insurers think the exchanges are detrimental to their interests, they will be perfectly happy to *not* be included and see the whole idea fail before it can be expanded to become a real market force.

This, in fact, is my greatest concern about the exchanges -- that they will not have an "attractive" enough mix of customers that ignoring them presents a significant loss of opportunity to the insurers, especially when it is in the insurers' interests to see them fail.

Posted by: mikerose2 | December 18, 2009 3:23 AM | Report abuse

"At this point, I should have a macro on my keyboard for this concluding line: Is it perfect? No. Is it good enough? Maybe not, even. Is it better than what we have?

Absolutely."

You have a very low threshold for spending $900 billion dollars.

Posted by: cautious | December 18, 2009 3:39 AM | Report abuse

We've heard this competition BS before in opening the markets for the banks. See how well that worked. Instead of more competition there are now fewer larger banks with less competition. That is going to happen with health care with consolidation into a few large companies with no competition across state lines as has been speculated.

Posted by: Falmouth1 | December 18, 2009 6:01 AM | Report abuse

"Not so in the exchanges. It's easy to shop, to compare." Who says that? Where is the evidence supporting that? Why shouldn't we conclude, based on past esperience, that these excahnges will be a sham, like very much this administration is doing, lacking the transparence and the means to achieve their alleged goal of opning up the markets? Sry, Ezra, but you can't make that point so casually. This is a very important issue, you should present something to bolster your view.

"Add in the presence of national plans". Would be good, but how? Don't state laws apply? Those national plans sure have to be adjusted to fit into the legal requirements of the states. And, once again, the monopolists and oligopolists in those state markets have a huge advantage in this. Sry, but I'm not convinced that "national plans" will make much of a difference, and that this will become reality under this crippled legislation.

Posted by: Gray62 | December 18, 2009 6:03 AM | Report abuse

ezra,

without the antitrust exemption revocation, how can we be sure that companies within the exchange will not engage in horizontal price fixing?

Posted by: kdn1 | December 18, 2009 6:23 AM | Report abuse

Thats nice, in theory. The problem is I've seen exactly the same system in practice - Car insurance and home Owners insurance. As a car owner and a mortgage holder I have both, and I do not (theoretically) have a monopoly on either.

But I am required to have both - on neither of these do I have a choice. And they both amount to cartels that play the regulations, make money hand over fist, and buy off state governments year after year.

So, I really really hope this new system of regulations can, in and of itself, keep my interactions with health insurance companies from devolving into the same kind of "Sure you can leave, for another company run exactly the same way we are" interactions I currently have with other mandated insurance companies, banks, and similar firms, but frankly I am skeptical.

Posted by: Jonnan | December 18, 2009 8:24 AM | Report abuse

What kdn1 said.

Let's face it, the antitrust exemption gives the insurance companies carte blanche to fix prices.What would happen is that BOTH Blue Cross ,Kaiser and others would agree to fix prices beforehand in some back room, and the prices go up in lockstep. When the regulators object, the colluders come up with some plausible BS why the world would end unless they raised prices, and then have their tame legislators attack the regulators for being "unrealistic" and "socialistic". The regulators cave . Rinse and repeat.
Even easier? Just get former insurance execs to be the regulators. That way everybody is on the same page re these "vital" rate increases.
Ezra's problem is that he believes the exchange regulators will think like him, which is why he loves exchanges. I expect that the insurance lobbyists are going to make sure that NONE of the regulators think like him.

Posted by: stonetools | December 18, 2009 9:26 AM | Report abuse

In real life, none of this stuff regarding exchanges will work. Insurers are only pursuing the large group markets (employer) now, and have been for a number of years. None of these new rules apply to employer policies - only to the individual market. We have already been down this road once before back in the late 80's - it was called MSA's. When a Republican administration passed MSA's, which then combined a Roth type IRA with a high deductible ($3000 ) policy, the Democrats in Congress were so afraid that there would be a mass exodus from the traditional market that they attached an ammendment limiting the total number of MSA's nationwide to 750,000, or less than 0.5% of the taxpayers. People expected a stampede into these plans - the reality was that when the program was shut down many years later, only 380,000 of those slots were ever filled. Why? Because, even though insurers could offer whatever they wanted, there were only 2 takers nationwide, and the premiums were not low enough to entire anyone to take on a $3000 deductible. Anyway, the big insurers have ZERO interest in the individual policy market, which is what we are talking about here. They pretty much don't write individual policies now. The individual market is covered by firms like HPA and Midwest, companies most people have never heard of because they are not in the employer market at all. And if you think regulators are going to save the day, you only have to look at the current mess on the Gulf Coast with property insurance, where prices for policies are 4 times what the property taxes are, or about 6% of the properties value annually. Why? - because their risk of payout is very substantial over a 20 years period. ( Most homeowners insurance is about 0.5% of the property value annually). Nobody will participate in these exchanges with all of these rules - if this was a profitable market for insurance companies, they would already be there in force and wouldn't need an exchange to participate

Posted by: shredley | December 18, 2009 9:48 AM | Report abuse

Ezra - You're doing a service to the left with this post. Reading some of the commentary it seems to be a popular misconception that insurers can engage in monopolistic pricing. Which is very far from the truth. Insurance is much closer to a commodity. Margins are thin. Returns aren't great. They're highly regulated and will be even more regulated in the future.

The anti-trust exempltion has not practical benefit so its removal will not change the market at all.

Posted by: MBP2 | December 18, 2009 10:03 AM | Report abuse

Even with exchanges and comparison there's a huge amount of lock-in, especially for individuals. There's the time spent for comparison, then the time spent finding out if all your doctors are available through a different insuror and/or finding substitutes if they're not. And since all this changes from month to month, it can't be done too far in advance of your current policy year's expiration, but it can't take too long either, because you're not allowed to go without. Sure, it's not a straight-up monopoly, but for tens of millions of potential customers it will be close enough.

Posted by: paul314 | December 18, 2009 10:45 AM | Report abuse

In many states, you will simply have Blues competing against Blues . . .

It would be much better if the exchanges are regulated by the Federal govt (as in the House bill) rather than by the states (as in the Senate bill)

Many states won't regulate at all. The Federal govt --probably would.

Posted by: mahar1 | December 18, 2009 11:26 AM | Report abuse

If the exchange is not open to everyone and the vast majority of its users dont "feel" the price (whether through subsidies or employer covered) than there is no competition. prices will not come down because there is no reason for the consumer (except for a small subset of the individual market that will be livid about the mandate) to choose the "cheaper" plan.

the mandate as a panacea of cost control is a mirage. in reality people do not act like they are hypothetically supposed to. if everyone isnt eligible for the exchange then there isn't competition between insurance companies. if most of the insurance premiums arent paid directly by the consumer then the consumer has no incentive to price shop.

considering that having the govt force individual citizens to buy a product from a private business at a cost of over 10% of annual income (and that's the price for not using it. use the insurance and there are more costs (co pays, deductables, rx, etc)) would be a unique event in our country's history (and against many of our principles). if loophole ridden restrictions, temporary subsidies and the creation of an (contracted out) exchange that the vast majority cant use is the trade off for a fundamental change in the relationship between the state and the citizen then it's not enough.

you guys will own this foreseeable debacle just like the iraq war. if the "benefits" don't kick in until after the next presidential election then they aren't urgent and the time pressure is solely self inflicted.

Posted by: PindarPushkin | December 18, 2009 12:01 PM | Report abuse

I worked for a medical insurance company.
This is how it works: There is BC/BS and then there is everyone else. BCBS charges what they damn well please and everyone else scrambles for the left overs. They all raise prices at the same time and at about the same amount. And no, there is NOT competition in most states.
Take the Obamacrat filters off your ears. This legislation sucks and should die.

Signed a moderate/liberal Democrat.

Posted by: teresainpa | December 18, 2009 3:26 PM | Report abuse

Hmnnn from reading the comments, it seems that the Obamabot best argument is "we were always going to give you this crappy Insurance company bailout legislation. You are stupid if you are surprised or disappointed SO SHUT UP"!

Posted by: teresainpa | December 18, 2009 3:30 PM | Report abuse

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