The Role of Competition in Health Care Reform

One of the biggest issues concerning the rising health care costs is competition, or the lack there of.  Many states only have a few carriers.  This is a problem in many states and the consumer has suffered because of it.  Now, one option is to let the government come in and compete with these carriers.  The argument here is that the government will be able to undercut these carriers on price and force these carriers to lower theirs. 

There are problems with this.  Many do not realize that these insurance carriers only operate on a 1-4% profit margin as it is now.  If they are forced to lower their price they will be run out of business or cut jobs.  So they will not lower their price too significantly, they cannot.  The next problem is if government is paying these costs under their plan they will reimburse doctors and hospitals the way they do with Medicare.  On average they pay two-thirds of the actual medical bills.  This is why many doctors have stopped taking medicare patients.  These bills still have to be paid, where will this cost get shifted to?  The only logical answer has to be private insurance.  Which means these carriers will have no choice but to raise their premiums. 

It is hard to understand the argument that a government option would lead to the best competition.  The next argument is to allow cross-state purchasing of health insurance, the thought here is that this would get rid of the problem in states where consumers only have one or two choices.  While this is a better idea, there is still potentially a problem with this.  As it works right now, in most states there are one or two major carriers that get all of the business.  These top carriers get very lucrative discounts from their "network" hospitals and doctors in their state (usually somewhere from 25-45%).  These discounts have a dramatic effect on premiums.  If new carriers were to come into the market they would more than likely not see these same discounts.  Therefore it would be difficult for new carriers to compete. 

While the latter of the two seems to make more sense, it still needs work.  There has to be a way to make the playing field fair for all that are competing in an area.