Wednesday, August 19, 2009

John Shadegg v. Robert Gibbs on How to Break Up Health Care Monopolies

From The Weekly Standard

At yesterday's White House press briefing, Press Secretary Robert Gibbs took a step back to reiterate a familiar Democratic argument that we need a "public plan" to provide "choice and competition" in the health insurance market. "I want to step back just for one second and discuss -- because we threw around the notions of choice and competition -- let's discuss why you need choice and competition," said Gibbs, who continued:

my home state of Alabama, BlueCross/BlueShield has roughly 89 percent of the private health insurance market, okay? We all understand that in a monopoly, where one side dominates the entire market, it's going to be hard to keep down costs, right? If you had one place to eat lunch before you came to the briefing, do you think it would be cheap?

"Probably not," replied CNN's Ed Henry, who served as Gibbs's interlocutor during this Socratic dialogue.

"Probably not," Gibbs agreed. "If you had two places to eat, my sense is competing dishes might not be as expensive as if there were only one."

Gibbs's argument sounds reasonable enough, but Republicans have a sound, two-fold response: (1) Replacing a private monopoly with a public monopoly won't do much good (a study by the Lewin Group shows that the government plan could cover 100 million people), and (2) there are better ways to promote choice and competition in the marketplace.

"It is government policy that prevents competition in the health insurance industry," Rep. John Shadegg (R-Ariz.) told me during a phone interview. Shadegg has sponsored the Health Care Choice Act to allow individuals to purchase policies across state lines to increase competition. Each state currently regulates what and who insurance companies must cover, and, as this report from the National Center for Policy Analysis shows, there is a much stronger correlation between costs and regulation. For example, a 25-year old man in highly-regulated New Jersey or New York would pay more than $5,000 for a policy while the same person would pay only about $1,500 in lightly-regulated Iowa or Kansas.

In addition to letting people purchase policies across state lines, Shadegg argues that "we have to enable people to purchase their own health insurance at the same tax advantage basis that a company can buy it."

"What if you got home today and you got two letters, one from your auto insurance company and one from your health insurance company?" Shadegg asks. "For auto insurance you'd call one of their competitors, and ask 'what can you do for me?' " But you wouldn't have that option if you get your insurance through your employer. "That's what helps make health insurance companies very unaccountable," he says. "They only have to market to employers, they don't have to market to you and me."

As for Gibbs's specific example of Blue Cross/Blue Sheild's monopolistic market share in Alabama, theBirmingham Business Journal's report in March paints a more complicated picture. "Alabama families paid an average of $4,601 while the national average was $5,799. Louisiana had the region’s highest average premiums at an annual rate of $7,171," but the costs are indeed higher in Alabama than in other Southeastern states.

But quality doesn't seem to be a problem. Blue Cross/Blue Sheild is "kind of like Wal-Mart," Alabama Department of Insurance deputy commissioner David Parsons told the Journal. "The bigger they get, the better they get because of economies of scale."

The report notes that BC/BS has the potential to gouge consumers and while there are some reports of the company short-changing hospitals, one former hospital CEO told the Journal: "I wouldn’t call BlueCross generous, but they are generally fair.”

Still, both Republicans and Democrats agree that the current system could be improved with more competition. While conservatives would like to create scores of new options, Obama wants to create only one new government plan.

And having to choose to purchase your lunch at Wal-Mart or a government-run grocery store doesn't seem like a very appetizing choice.

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