One of the hottest topics of the recent election was inflation. One side advocated tighter restraint of federal spending and increased marketplace competition to deal with inflation, while the other side advocated increased government controls and regulation.
Sadly, little attention was focused on the results of each alternative. Grocery stores were demonized as greedy profiteers, and yet few noticed that after-tax profits in these businesses range between only 0.5% and 1.5% of sales. Competition works. What about government control and regulation? Take the healthcare field, for example.
The passage of the Affordable Care Act, also known as Obamacare, in 2009 was advertised by its proponents as a way to bring healthcare costs under control. Specifically, the stated intent was to increase access and reduce out-of-pocket costs to consumers for health insurance. But since that bill went into effect the opposite has happened: Insurance premiums have gone up, out-of-pocket costs have increased, and consumers have fewer choices now than in the past.
According to a Kaiser Family Foundation employer health benefits survey, individual coverage premiums increased by 58% from 2010 to 2022, and family coverage premiums increased by over 63%. This year, private health insurance premiums are projected to reach a record high, and astonishingly, these cost increases have, in fact, outpaced even the historically high rates of inflation of the past few years.
One of the main reasons for this increase in cost and constriction of choice is the health insurance industry consolidation that occurred in the wake of Obamacare and similar state-level initiatives around the country.
A major component of the law was the imposition of expanded coverage mandates, a list of procedures known as “essential health benefits” that insurers offering plans in the new central health insurance marketplace were required to cover, regardless of individual circumstances. The impact of these mandates, and all of the others that have piled on at the state level in the ensuing years, has been to increase costs on insurers, who then pass those costs along to consumers. But the problem gets even worse than that.
As the costs of covering these mandates increased, smaller insurance companies were either squeezed out or bought up by larger ones that had the bandwidth to absorb those new costs and mandates. From 2011 to 2020, the number of large-group market insurers dropped from 640 to 472. The drop was even more pronounced in the individual market where it dropped from 1,529 insurers to 563. This has continued over the years until present day, where six large insurance companies control the bulk of the insurance market and the top three insurance companies in each state control more than 80% of the market share on average.
The effect has been as predictable as it has been damaging. That sort of government-created monopolistic control of the market has granted the remaining insurance companies a degree of pricing power that is unchecked by the regular functions of the market and has left providers and patients with the short end of the stick.
Denials of claims, as well as excessive prior authorization requirements that require providers to seek approvals from insurers for some of the most basic medical procedures, are on the rise. This makes receiving and providing care difficult as 78% of physicians have reported that prior authorization can lead to patients abandoning a recommended course of treatment. It is also leaving hospitals and patients, who are largely at the mercy of this pricing power monopoly, to deal with unreimbursed medical bills over which they have little leverage to negotiate.
Instead of recognizing this mistake and initiating efforts to reassert some of the functionality of the market back into the industry, too many states are doing the opposite. Several, including my home state of Colorado, have instituted or are pursuing some form of public option, where government-backed insurance competes with private plans, and are often coupling that with even more coverage mandates. The effect has again been all too predictable, with more insurers exiting those states, leaving consumers with fewer choices and concentrating market share among the few that remain.
Government interference created this mess, and consumers have paid the price. If political leaders truly want to lower health insurance costs for everyone in America, the first step needs to be to revitalize the functions of the free market in healthcare.
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Hank Brown represented Colorado in the House of Representatives from 1981 to 1991 and the Senate from 1991 to 1997. He is a former president of the University of Colorado.
This article was originally published at www.washingtonexaminer.com
