December 12, 2010

Health Care & Oligopolies

""Consumer advocates fear that the health care law could worsen some of the very problems it was meant to solve — by reducing competition, driving up costs and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.
The new law is already encouraging a wave of mergers, joint ventures and alliances in the health care industry,” said Prof. Thomas L. Greaney, an expert on health and antitrust law at St. Louis University. “The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater.”" Consumer Risks Feared as Health Law Spurs Mergers, New York Times, November 21, 2010
We lost track of a key ingredient that Adam Smith identified as necessary in order for “rational self interest” to work. There must be many producers. In too many industries, the number of producers has shrunk and the ones remaining have gotten “too big to fail”. This is true in the auto industry, the banking industry, wall street, health care and will soon be true in the computer software industry.

When discussing the health insurance industry proponents for this specific oligopoly site the fact that the bigger the insured pool, the lower insurance premiums can be. However, I submit that this "bigger pool savings" is more than offset by the fact that the rational self-interest of the companies is not totally aligned with the rational self interest of the insured. The insurance industries self-interest is to keep the oligopoly alive. The self-interest of the insured is to have as many insurance companies as possible clawing to get his business and thus ringing out all excessive cost, including unconscionable salaries for top executives, to earn the consumers business."There is no surprise that the insurance industry is trying take away our free markets. The surprise will be if our representatives in Washington will do anything about it.

To spur on competition we should encourage the consumer to shop by providing health care vouchers and allow the receiver of such vouchers to be financially rewarded in some way for being fragile and finding a health care provider that is charging "below market" rates for their services. (The exact details of this needs to be worked out).

1 comment:

  1. If you look up "Strict Scrutiny" as it applies to constitutional law, you will have a good idea how the U.S. Supreme Court will rule.

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