An Antitrust Angle on the Public Plan

Is genuine health reform possible?  Several recent developments are promising.  President Obama’s big Congressional majorities (plus the Specter defection) are reminiscent of the Johnson-era milieu that led to Medicare and Medicaid.*   Key interest groups are less “Harry and Louise” and more “try to appease.”  Most importantly, the failures of managed care, consumer-directed health care, and other artifacts of the “ownership society” are now self-evident.  As unemployment rises, lack of insurance spikes, compounding the misery of many of those unlucky enough to get thrown out of work.

What could derail real health reform? Most likely, fake health care reform, particularly the kind that assumes there is something near a “free market” in operation now. As health care antitrust scholar Thomas Greaney argued yesterday, markets for health care are often very concentrated or riddled with barriers to entry:

The unfortunate fact is that a majority of the country is served by a few dominant insurers. (In 16 states, one insurer accounts for more than 50 percent of private enrollment; in 36 states, three insurers have more than 65 percent of enrollment). Likewise, because of lax antitrust enforcement, most markets are characterized by dominant hospital systems and little competition among high-end physician specialists.

In these circumstances, which economists call ‘bilateral monopoly,” the players often reach an accommodation in which they share the monopoly profits rather than compete vigorously. A prime example is the experience in Massachusetts, where Blue Cross/Blue Shield, the dominant insurer, reached an understanding with the dominant hospital system, Partners Healthcare, that entrenched higher prices for health insurance and hospital care.

Some might hold out hope that the Obama administration’s new emphasis on antitrust enforcement might solve that problem, but I would not hold my breath. After losing seven hospital merger cases in a row, the government is not exactly in a position to go storming into health care markets to demand competition. Only new antitrust laws are likely to accomplish much in that direction, and even if they were by some miracle adopted this year, I can’t imagine them having much effect within any reasonable time frame.

Rather than hoping for a magical market to provide care for all, it’s time to realize that only a guaranteed public option can optimally balance access, cost-control, and the type of value-based purchasing that leads to quality improvement. The public option now discussed by the Obama Administration and the Senate Finance Committee won’t displace private insurance for the already insured. In fact, as Greaney notes, it may well help some private insurers by providing “a benchmark to hold up against private plans’ quality and cost performance.” The public option will almost certainly be one of many choices for health insurance consumers, expanding choice rather than constricting it.

By providing transparent accounts of coverage decisions, the public plan may well spearhead the types of comparative effectiveness analysis and evidence-based medicine that all health scholars agree need to be at the heart of rational health policy. As Diane Archer compellingly testified, “disclosure of insurer medical and cost data would drive accountability from the private insurers and promote better behavior.” In a sector as permeated by government subsidies and regulations as health care, a public plan option offers some hope that the demand side in health care can gain some bargaining power relative to the supply side.

*We can only hope that the old lessons of guns and butter will lead Obama to reallocate military funds to health needs, rather than following LBJ’s and Nixon’s path to stagflation.

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