The New York Times editorial page is the latest in a lengthening series of commentaries worrying about the impact of two proposed corporate mergers in the health insurance market. Anthem has agreed to acquire Cigna and Aetna is taking over Humana. That means the number of big health insurers will drop from five to three.
The Times and every other commentator who has weighed in including the AMA has warned that diminished competition is not good for taxpayers or consumers. They want the Justice Department to take a long hard look at these latest mergers to insure that consumers are not stuck with higher premium costs as many parts of the country turn into markets with only one insurance provider.
The critics are wrong. Blocking these deals is a terrible idea. The mergers should be allowed to continue. In fact they should proceed until there is only one private insurer left. Only, at that point should the government step in, declare the last company standing to be required to merge with Medicare thereby letting the free market produce what many reformers have only been able to dream of—a single payer system.
The health insurance market is consolidating due to the fact that being bigger gives insurers more leverage to negotiate prices with hospitals, health care providers and pharmaceutical companies. It also gives insurers greater administrative efficiencies.
In fact, that is exactly why not-for-profit Medicare has administrative costs of about two percent while private insurers average seventeen percent. Medicare is tens of billions of dollars cheaper then private insurance in terms of cost for the same services. The Congressional Budget Office has predicted that the rising cost of private insurance will continue to outstrip Medicare for the next 30 years.
The invisible hand of the market so beloved by those who still favor private insurance despite its utter failure to contain costs is pointing clearly toward merging the private health insurance market. If you want a single-payer system, don’t fight the capitalist forces that favor a gigantic single provider. Just let it happen, then regulate the ‘last man standing’ as a public utility, merge it with Medicare and the VA and voila—single payer here at last.
Thank you Adam Smith and Milton Friedman for doing what Bill and Hilary and Obama could not—getting America to a universal, single-payer health care system.
Art Caplan is a professor at NYU and a correspondent for NBC News.
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First we dream, then we do.
But our inability to tackle global warming (another truth ignored) might doom us before health care bankruptcy.
Peter — You are a dreamer!
Single payer plans work in other countries because their citizens accept a greater degree of government control than would be acceptable in the US — especially over supply of and access to medical resources and over healthcare budgets in general. Their effectiveness is possible — in part — because participating medical professionals are willing to accept lower incomes, and because healthcare is typically part of a larger social welfare network.
“having a lot more competing health plans just means none of them have the power to negotiate lower provider prices.”
Just think how much negotiating power a single pay system would have.
“because MA costs were typically lower than FFS.”
Why wouldn’t a single pay system be even lower?
“MA plans appear to be a LOT better than Medicare FFS in controlling utilization — and therefore total costs.”
How does MA control utilization and why wouldn’t single pay Medicare be better at controlling utilization?
Around the world we see the more government control the lower overall costs.
Where to start with the fallacies in this post?
First, effective competition depends on much more than the number of competitors. As I remarked in a recent THCB post commenting on a Commonwealth Fund study, having a lot more competing health plans just means none of them have the power to negotiate lower provider prices.
Second, the administrative cost percentages comparison is totally misleading – Medicare’s claimed 2 percent (actually closer to 3 percent) excludes functions performed by other federal agencies. More importantly, this percentage is based on costs for a relatively much sicker group than those served by private insurers, making the denominator much larger. If you want an apples to apples comparison, it should at least be Medicare FFS versus Medicare Advantage.
Third, shouldn’t we be looking at total per capita costs, not just administrative spending? A 2012 Kaiser Foundation study found that MA plan bids were below FFS spending in almost every metropolitan area. A CBO study (not the one cited by Art) of the potential impact of a premium support approach in which MA and FFS would compete on a level playing field found that savings could be up to $45 billion a year, because MA costs were typically lower than FFS.
Fourth, it’s not just the cost of individual services that drives up spending. Art says: “Medicare is tens of billions of dollars cheaper then private insurance in terms of cost for the same services”. Maybe, but according to a 2010 Health Affairs study, MA plans appear to be a LOT better than Medicare FFS in controlling utilization — and therefore total costs.