Health care reform: Careful whom you bash

BusinessWeek chronicles CT AG Richard Blumenthal’s election season bashing of health insurers rate hikes.

“The public has a right to expect a thorough examination of all proposed rate increases that go far beyond the pale, such as those requested by Aetna and Anthem,” said Blumenthal.

[Insurance Commissioner Thomas] Sullivan said in a Sept. 22 letter to Blumenthal that the Insurance Department held the line on a rate request from Anthem last fall. The agency pared a rate request by between 39 percent and 58 percent from what had been requested, he said.

BTW, Blumenthal is running for Senator. Could you tell?

In more thoughtful analysis, the Incidental Economist examines how market power – either from hospitals or insurers – can drive costs. Quoting

Hospitals with the most clout command payments two to three times higher than the lowest-priced hospitals. And hospital costs overall continue to soar.

Meanwhile, insurers with market power are better for consumers, but worse for hospitals and doctors:

According to theory, consumers get the best deal when the health insurer has considerable market power (monopsony or market share concentrated in very few insurers) and when the insurer is a nonprofit entity (as would be the co-ops recently proposed by Senator Kent Conrad). Nevertheless, a monopsony insurer reduces producer surplus (and therefore overall welfare) by extracting prices from providers below those of a competitive market.

So here’s the deal: When hospitals are powerful, prices rise. When insurers are powerful, prices are held in check. Quiz time:

  1. If you want to hold prices in check, do you bash hospitals or insurers?
  2. If you cravenly seek votes, do you bash hospitals or insurers?
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