Bringing More Competition to Health Insurance

Bringing More Competition to Health Insurance
AP Photo/Susan Montoya Bryan
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As partisan rancor about how to handle the high cost of health care, health insurance, and prescription drugs persists, maybe it is time to identify what everyone should be able to rally around: more competition. Hidden behind the complexities of the health care market is an unusual relationship among all Blue Cross/ Blue Shield health insurance plans that may be holding back a slew of competition that could save employers and consumers lots of money while promoting greater health care quality. It is time for the antitrust authorities and possibly for Congress to challenge the Blue Cross territorial and related association rules that prevent these insurance operations from maximizing health insurance competition across the United States.

For most employers and consumers who purchase health insurance, prices have been rising and competitors have not been able to challenge the power of the largest dominant health insurance providers. The average family coverage premium has increased 20% from 2013 and 55% from 2008. The Blues insure about a third of individuals across the U.S., and in 41 states and D.C. are the largest sellers of employer-provided health insurance. Rising prices in markets open to competition usually triggers entry of new competitors and aggressive jockeying to lower price and increase quality. This does not appear to be working for health insurance and the question is why.

Even when prices are inflated, it is very difficult for new insurers to break into local markets. Doctors and hospitals, especially the best ones, like and need a stable base of customers to serve, so they tend to be suspicious of contracting with new players if these players cannot guarantee a large number of potential customers. Similarly, employers who would love more competition are often unwilling to contract with insurers who cannot guarantee access to the best health care providers and facilities in the community.

This can result in a no-win situation for insurers who want to compete but cannot crack the nut of simultaneously contracting with hospitals, doctors, and major employers. The Justice Department's Antitrust Division has found this conundrum susceptible to challenge in markets that already have more than two or three relatively equal-sized insurers. In circumstances where employers and providers have more choices, no one insurer can command dramatically larger discounts to prevent other insurers from offering attractive discounts to break in the market. These discounts are often the best tool to lure employers and providers to take a risk on a new competitor.

As then Assistant Attorney General Christine Varney stated in 2010, “[T]he biggest obstacle to an insurer’s entry or expansion in the small or mid-sized employer market is scale. New insurers cannot compete with incumbents for enrollees without provider discounts, but they cannot negotiate for discounts without a large number of enrollees. This circularity problem makes entry risky and difficult, helping to secure the position of existing incumbents.” She then went on to say the Antitrust Division had “concluded that it may be easier to enter less concentrated markets, with competition between several large but relatively equal-sized insurers, than it is to enter a market with one or two dominant plans.”

Given the wonderful health insurance plans that Blue Cross/Blue Shield plans offer, their popularity, and strong market positioning in market after market across the country, they seem to be perfectly suited to compete against each other and other major insurers to bring down prices and improve health care quality.  So why don’t they?

For whatever reasons, some maybe totally justified originally and some not so much, Blue Cross plans have formed a kind of “association” with amazingly stringent requirements for membership and participation which make it virtually impossible for them to compete against each other in a meaningful way. For example, the association rules give each plan an exclusive “service area” where they may use the Blue Mark, the right to use the Blue Cross and Blue Shield names. The rules also require that member plans make about 80 percent of the revenue within that territory from services offered under the Blue Mark, and at least two-thirds of its national health insurance revenue from or related to blue-branded services as well, making it impossible for the individual plans to challenge each other in a major way.

One private lawsuit challenging these restrictions is currently working its way through the courts, but now is the time for antitrust officials and Congress to think bigger about competition. There is no doubt that Blue Cross and Blue Shield plans need to coordinate care within their network across state lines and should have the ability to contract with all sorts of hospitals and doctors to ensure quality care, but this should not prevent these plans from also bringing more interstate competition into the health insurance market. It is time for the Justice Department to investigate whether these types of territorial restrictions should be limited or eliminated. In addition, it would make sense for Congress to consider preventing health insurance companies from artificially limiting competition through associational relationships that prevent insurers from entering each other’s markets.

Our nation needs to challenge the rising costs of our health care system on many fronts, and health insurance competition needs to rise to the top. Without the kinds of bipartisan support competition policy proposals historically generate, we may be doomed to waiting out partisan fights that just leave employers and consumers paying way more than they should have to for their health care.

Gene Kimmelman is a consumer advocate with an expertise in competition and anti-trust law, and is the current President and CEO of the non-profit, Public Knowledge. From 2009-2012, he served as Chief Counsel for Antitrust in the U.S. Department of Justice.

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