Sunday, September 15, 2013

Consumers Pay when Government Limits Play

ACA insurance exchanges are broken before they open

Government-run public insurance marketplaces established under the Affordable Care Act (ACA) will open October 1. A recent post by Sarah Kliff of The Washington Post mentioned that "bigger marketplaces are good for the health law. More subscribers make it more likely that insurers will want to sell and ... help hold down the cost of premiums". This is basic economics: more sellers offering competing products mean consumers get greater choice and lower prices.

The problem for insurance consumers is that there are 51 ACA marketplaces set up: one for each state and the District of Columbia. And consumers may only buy coverage from the state-based market in which they reside. (BTW – Americans living in U.S. territories are not eligible.) Imagine if Amazon had set up 51 different websites offering state-specific products and restrict each website to only state residents. It doesn't make sense, but that's what Congress did.

As a result there are three currents running against consumers' best interests: government-run markets, state-based insurance commissioners, and state-bound insurance firms.

Free markets are the embodiment of the democratic economy: buyers and sellers make their own decisions on if, when, where, and how often they play. Government's role in the free market is to ensure that there is free exchange of information between buyers and sellers, that no one can "corner the market" through monopoly, and that everyone incurs the full cost of their actions (for example, creating pollution). By contrast government-run marketplaces choose the players – which buyers and sellers are allowed to participate – and the rules under which they play, limiting consumer choice and muting price efficiencies.

State insurance commissioners have no reason to object to state-by-state insurance markets: ACA marketplaces reaffirm the current fractured American insurance landscape. Commissioner livelihood depends on the existence of limited markets; they have an association to lobby for their interests. Likewise insurance companies have little interest in expanding markets beyond state lines: limited markets means less effort competing and higher prices for their products.

The House of Representatives has tried to repeal ACA with over 40 votes and has failed to do so each time. Blinded by emotion and fed by political gamesmanship, Congress continues to flail about without fixing the primary market-constraining flaw in legislation.

Regardless of what you think about the law, the health insurance market had limited competition before ACA. By reinforcing fractured health insurance markets, Congress has ensured that affordable insurance for all remains stifled by entrenched interests to the detriment of consumers.