Introducing "Competition" to the Health Insurance Market

There are many good reasons to have a deep conversation about how health insurance works in this country, because there is a lot of things wrong with it. What we’re getting from Obama and Congress, however, is a PR campaign designed to distract us from the fact that they would like to change not health insurance, but practically everything about health care itself.

Reports have it that Obama’s pollsters recently suggested that the President try to make the private insurance industry the villains of the piece. This has several virtues: it’s always rhetorically good to have a single, easily-demonized bad guy; and if it works, it conveniently will distract everyone from the fact that the true objective is far deeper than simply to make insurance cheaper for those who currently have none.

(What is the true objective? By God in Heaven, I wish I knew so we could debate it openly. But the true objectives of health reform are one thing Obama and Congress are keeping a deep dark secret. I can read legalese, but I can’t predict the unintended consequences of far-reaching thousand-page laws any more than Nancy Pelosi can.)

So the rhetorical device being used against those of us who would rather know what we’re getting into, as opposed to hoping blithely that the reforms will do what Obama promises, is this: the health insurance market needs some new competition.

In a truly remarkable moment, HHS Secretary Sebelius let the cat out of the bag this morning when she said that, although a public option isn’t a strict requirement, the President is committed to some structure that will, through the miracle of competition, induce private insurance companies to “do the right thing.”

But the President and Congress haven’t proposed anything at all that will increase competition. They could allow interstate marketing of health insurance and pre-empt the many state-mandated minimum coverage requirements that make this a sclerotic and inflexible market.

Instead, what is the proposal? First, a government-funded “public option.” Now, some kind of national system of “co-ops,” which will be functionally indistinguishable from a public option because they will similarly benefit from free capital, grabbed from the taxpayers.

These people aren’t proposing to introduce competition at all. They’re proposing to introduce supply. (If Obama, Pelosi and Waxman actually reasoned that too much supply makes prices fall, they can each have a gold star.)

But the market isn’t adding new supply today, because none is needed. Indeed, if it were legal to produce new lower-cost products without some of the features mandated by current laws, the market would produce that supply overnight.

It’s impossible to add new supply in order to equilibrate a heavily-regulated market at a lower level, unless you subsidize it. The Democrats are simply deluded if they think they can madly dash into a business that’s new to them, and simply figure out how to “do the right thing,” in competition with people who are professionals at health insurance and have been in the game for decades. They’re simply not going to make health insurance cheaper just by eliminating profits (which are necessary because they’re how you pay for capital).

And if the government decides to put its thumb on the scale by creating new supply (either through a public entity or quasi-public co-ops) with capital that is completely cost-free because it was taken from the taxpayers, they can hardly call that competition, can they?

The Obama Administration: Business-management Amateur Hour.