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Gerald B. Jacobs, Published February 28 2010

Health market is broken

A main Republican “solution” to the health care financial problems facing the country is called “competition.” Among the competitive-based “free-market” solutions they have offered is one claiming that by allowing insurance companies to compete across state lines more insurers will be brought into play, creating more competition and – eureka! – prices will drop like a rock.

The problem is that there seems to be no evidence that would happen. Recently a California insurer, Well Point, increased premiums for individual health insurance policies by as much as

39 percent. California has 37 million people and lots of insurance companies. Why would anyone think that a different result would come about if, say, our 21 smallest states (42 percent of the states), whose aggregate populations total less than California’s, were to allow more insurance companies to invade their states?

If such a small state competitive scheme were to come about and follow the California path with upward of 39 percent premium increases, many people would likely end up purchasing less-expensive, but lower-quality insurance, or drop insurance entirely – especially if they felt optimistic about their health.

Insurance companies may try to “cherry pick” the most healthy prospects, but, as their premiums rise, they may end up retaining those who actually have worse prognoses, thus raising the cost of caring for their average policyholder. That is why everyone needs to be covered and contributing their fair share into the health coverage system.

The health care finance system is broken. Republican “solutions,” often born in insurance companies’ board rooms, are merely tactics designed to finesse the problem by advancing a strategy used time and again by those with an interest in maintaining the status quo: “There must be some changes made, so that things can stay the same.”