President Obama and congressional Democrats this week, following focus group testing, altered their rhetoric by beginning to refer to their proposed health insurance exchange as a the creation of a health insurance marketplace. The change in rhetoric is simple enough to understand, as the term marketplace is more soothing to a general public that has grown accustomed to more than 200 years of a capitalist based economy. But, the question remains as to whether the term marketplace is an accurate depiction of the proposed Health Insurance Exchange or rather just creative marketing designed to create a false perception.
A marketplace, by 200 years of evolving definition, is a forum that promotes healthy competition between businesses offering a diversity in products and services at varying prices. A marketplace is the the ultimate exercise in capitalism as the public, not the operators of the forum or businesses, determine which products are purchased and which companies survive. The best example of a marketplace is simply a flea market, whereas any vendor is allowed to sell the products they design or choose and the consumer has the ability to determine what products they will purchase and at what price. If the administration wanted to create a true health Insurance marketplace they could do so in three very easy steps:
#1) The largest factors in Health insurance premiums are the size of the insurance pool and the claims experience of those insured. The more individuals covered under a policy, the more manageable, predictable and stable the claims payouts become. However, the federal government does not allow health insurance companies to offer policies across state lines and does not allow small groups or businesses to create associations in order to increase their insurance pool. As a result, the insurance pool of a policy is limited by the number of individuals covered within a single geographic location and in the case of employer-sponsored coverage by the number of employees. A simple change in federal regulations allowing companies to sell policies across state lines and allowing small businesses to combine their plans would dramatically increase the size of insurance pools and provide more manageable and stable premiums.
#2) Under the current system, not only are plans limited to an individual state, but the government controls which plans may be offered within the state and which companies will be allowed to sell policies in the state. As a result, the marketplace is limited by the government and regulations greatly vary from state to state. By removing regulations that prohibit interstate selling and uniform standards companies new competition would enter into most states, creating a diversity in options and ending a practice of preferential treatment of companies by state regulators.
#3) Creating a uniform system of small business and low income tax credits designed to encourage inclusion to the health insurance marketplace at a minimum coverage level, rather than a penalizing tax structure or mandated benefits level, will encourage small businesses and the uninsured to purchase at least catastrophic coverage while maintaining the right to choose a level coverage based upon individual preferences. The adoption of such simple steps would create a true health insurance marketplace designed to promote competition and allow the public the opportunity to determine coverage levels and premiums. Within a true health insurance marketplace, the consumer has the ability to determine what benefits and coverage levels they will purchase while choosing what premium is acceptable for that coverage.
So can the proposed health insurance exchange be considered a marketplace?
No, the Health Insurance Exchange, as currently written neither promotes competition nor public choice.
Under current proposals, the creation of a health insurance exchange is designed to achieve two theoretical objectives. First, the exchange is supposed to lower premiums by creating a larger insurance pool; and secondly, the exchange is designed to provide equality in coverage. Regardless of whether or not there is a government option, the theory is noble. But in practice, attempting to achieve both objectives will create a counterproductive system that will by definition restrict competition and individual choice. Under the proposed exchange, the government will create a regulated primary insurance forum. A government agency or committee will then create guidelines regarding the level of coverage to be offered within the exchange. The committee's primary objective will be fulfill the government mandate for equality in insurance coverage. As a result, the committee will limit competition within the exchange to only companies that are willing to offer such coverage levels. An example of such an exchange is Medicare supplement industry, whereas all Medicare supplements offer identical, mandated coverage levels and the only difference between policies is the premium and service. As a result of the exchange, consumer choices will be dramatically limited. Currently, consumers have optional benefits such as variances in prescription drug coverage, deductible, co-percentage, and copay levels and other benefits such as maternity coverage. Under the proposed health insurance exchange, the only way to assure equality of coverage is to restrict those options and require participating companies to automatically provide traditionally optional coverages such as maternity, preventive care or laboratory services. As a result, individuals who might have otherwise chosen not to pay for these benefits no longer have that option. The quest for equality in coverage now creates an environment in which savings realized by an increase in the insurance pool are offset by the increased costs of non-optional coverage.
The administration and congressional democrats argue that the public will still have such options by purchasing coverage outside of the exchange. However, the President himself has admitted that the non-exchange marketplace will shrink under his Health Care Reform. This shrinkage will be due not to competition, but rather by the fact that subsidies, entitlements and tax incentives designed to reduce the number of uninsured will only be available to those individuals and companies that participate in the exchange. The concept is pretty simple: If I paid you a hundred dollars to come into my widget shop, would you pass it up to go into the widget shop across the street? The net result of the health insurance exchange will be the creation of a market with limited competition, all offering the same product with little variance in premiums. As a consumer, you will no longer have the ability to lower your costs or choose additional coverages. Moreover, just as in the Medicare Supplement industry, the companies with the largest available resources, name recognition and who enter the earliest will capture a larger market share, thereby forcing smaller companies to abandon the health insurance exchange, further reducing competition and creating the possibility of manipulation in pricing. The government health insurance exchange does not enhance nor promote competition, but rather creates a government supported monopolization of the health insurance industry by a select group of companies.
The debate over a government option is not the only debate that should be occurring. Regardless of whether a government option is passed, the Health insurance exchange will achieve the Democratic leaderships' objective of equality in coverage. Once this objective is fulfilled and a supported monopoly has been created, then the focus of the government will shift to cost containment.
To take you back to our flea market. Imagine if the owner only allowed vendors to operate that sold the same products. What would you find when you entered? Everywhere you turned you would find the same product at essentially the same price, and the only choice you would have would be which smiling face you gave your money too. Would you now consider that a marketplace?
In the end, the President Obama's Health Insurance Exchange is the farthest thing from a Health Insurance Marketplace. To quote the president, "you can put lipstick on pig, but its still a pig!"
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