The Incidental Economist considers who will be more powerful as Obamacare takes hold – insurance companies or hospitals.
In many states, one of the two is an oligopoly – an industry dominated by a few small players. In negotiations, the industry with the oligopoly has the advantage. It can pit the many players against each other to get a favorable price.
Harder to see what will happen when both industries are oligopolies – which could happen as insurance products standardize and the hospital industry continues to consolidate. Will they compete hard and drive rates lower? Will they collude?
Harder still to consider the impact of a rate regulator on the dynamic. The federal government drives Medicare reimbursements, which are important to hospitals, and state governments – emboldened by federal mandates and enriched by federal grants – will monitor insurance rates.