Health insurance is a classic mature industry; consolidating, dominated by a few very large players, very difficult to enter, price-driven.
Big insurers have many advantages over new entrants:
- their market share enables them to drive hard bargains with doctors and hospitals, getting the best prices;
- the huge costs of IT systems and integration thereof are spread across scores of millions of members, not tens of thousands;
- they have established brands, making them more attractive to consumers; and
- they have terabytes of data on everything from provider practice patterns to consumer spending habits to drug dispensing, allowing them to predict costs, trends, and expenses with far more accuracy.
Co-Ops, those not-for-profit, consumer-driven, local health insurance outfits were going to challenge the big boys, relying on great service, intense marketing, and local knowledge to carve out a niche in local markets.
And the ACA had provisions specifically designed to help them develop, grow, and become viable competitors – in local markets – in an industry dominated by behemoths. These provisions included “risk corridors”; financial vehicles designed to help health insurers entering markets by offsetting initial losses by transferring profits from their wealthier competitors.
The idea was to force competition into a market where size is all that matters, where it is all but impossible for new, entrepreneurial competitors to start, much less succeed.
Those provisions disappeared, killed off by a Congress ostensibly interested in the competition and the free market. Specifically, Sen Marco Rubio inserted the clause in the Cromnibus bill that prevented the Feds from moving money around to cover the Co-Ops’ losses in 2014.
Let’s remember that the risk corridor payments were to be budget neutral over the three year lifespan of the program. The Rubio amendment (Section 227) forced CMS to shift that to a “pay as you go” model.
Lest anyone think this was a new thing, recall a similar program was implemented by George W Bush and his GOP allies in the Medicare Part D program.
Here’s the net. A politician scores political points by killing a program his own party used to pass the biggest entitlement increase in 50 years.
And in so doing, he killed off competition in the industry that needs it more than any other.
What does this mean for you?
Less competition will lead to higher prices and poorer service.