President Obama, along with all of his true believers and comrades in the Democratic Caucus have been pushing the notion that HR3200 will create a health insurance exchange where consumers can shop for different health insurance premiums, one of which will be the public option. Their claim is that this exchange will encourage competition, which will necessarily cause prices to decrease. I applaud the President and his fellow Democrats for being able to grasp the concept that competition is a good thing, which does indeed lower prices. It seems, however, that their understanding of competition is sorely lacking. They want the American people to believe that simply having multiple options when it comes to a product is the same thing as having a healthy competitive market. The problem with this logic is that it misses key components of true competition; components which will not exist if HR3200 passes, and will therefore make their exchange completely noncompetitive.
The first element of true competition is choice. The consumer is at liberty to decide whether or not they want to buy the product. If they have a particular want or need for the product, they are free to make the decision to buy it and in so doing, then choose from the providers. At this point they can decide what features work best for them, and thus purchase the one with the most fitting options. Conversely, they can decide that their money is better spent elsewhere. The problem with this proposal is that it takes away the ability of the consumer to decide whether health insurance suits their wants and needs through the imposition of fines and penalties. The IRS becomes the strong-arm of the government, forcing citizens to buy health insurance or be punished thusly. Any wise consumer, being given the options of paying for something and paying for nothing, will use their money to have something. But making a choice by government diktat is not the same as being able to decide, without coercion, what one wants to do.
The second element of competition was touched upon above. This is the concept of product variability. What does one find when they peruse an automobile dealership? Do they find one car with all the same options and all in the same color? Or, perhaps, is one treated to an assortment of cars, in all shapes, sizes and colors with different features added throughout? As stated previously, consumers don’t all have the same tastes, and so will differently weigh that which is available to them. While one might want a sedan with power locks and windows, another might want the same car but decide to save money by purchasing one with manual locks and windows. Even still, a third consumer might opt for an SUV or sports car. The point is that manufacturers can differentiate themselves by offering their customers variation. If an automobile company did indeed produce only one car in one color, we might not be too surprised if we found out that it went out of business.
But the bill currently before Congress does not allow for those options in terms of purchasing health insurance. The bill requires a minimum level of coverage from insurance companies, as well as a cap on out of pocket expenses. Gone will be the “injury or illness” type of policies with low premiums and high deductibles, replaced with policies that require wellness and prevention testing. This will be anti-competitive by nature, since high deductible plans are, by their very nature, cheap because they put most of the risk on the consumer.
Next one must consider the cost of manufacturing when it comes to competition. Every company has different levels of efficiency, different wages that they pay their employees and different levels of overhead. These differences are primarily the reason why U.S. auto manufacturers have been unable to compete with foreign manufacturers for so long. The big three have been bogged down by such exorbitant labor costs for so long that they had a difficult time creating a comparable product for the same price as their competitors. Granted, insurance is a different kind of product, where the price is based both on the product and on the consumer, but nonetheless the idea remains the same. Insurance premiums vary based on the level of risk being taken on by the company. This is the reason why life insurance costs more when one gets older, because of the increased likelihood that the policyholder will pass away.
Since those on the left have been happy to make the auto insurance analogy, let’s make a similar one here. Higher premiums for auto insurance get paid by people who fit certain sets of criteria. If one is young, has a history of poor driving, drives a new car or lives in an area where car theft is commonplace, they have more costly auto insurance. Yet the left does not desire to make sweeping changes to the auto insurance market because of this “discrimination.” The simple fact is that people in these groups are more likely than others to have to file a claim, thus causing the insurance company to have to pay more money. The Democrats wish to pass this bill, which does not allow health insurance companies to adjust prices based on age, sex, etc. It is understandable to attempt to enforce anti-discrimination laws where it is fitting, but the simple fact is that certain groups are more likely to require high cost medical care than others. And either way, the truth is that this is a false dilemma between discrimination and no discrimination. The fact is that there is not one single trait in a person that determines rates, but rather a myriad of facts that actuary’s consider.
Considering all of these components which make a market truly competitive, and also considering the ways in which HR3200 wishes to strip those components out of health insurance, one must start to question this health insurance exchange. While the Democrats swear it will lead to lower prices and increased competition, there’s little in the bill which actually allows for that. And this article hasn’t even touched on how badly the public option will skew the market! Either our leadership has a serious misunderstanding of what competition truly is, or they hope that the American people fail to accurately understand. Regardless of which it is, the last thing this bill will do is lead to more competition.