I’m going to do a couple of posts on health care this morning, riffing off of two extremely revealing news accounts. To me, these both fit in the “STMYGH” category (‘stuff that makes you go hmmm’):
The NYT ran an interesting article about insurance company economics this weekend and I was once again struck by how the business of health insurance is so non-markety…yet another reason why we need to get the health reform plan up and running.
The story goes like this: insurers have been raising co-pays (the amount you contribute out-of-pocket when you get medical treatment) which should make people more cost conscious, and in fact, recession-battered families have been responding by seeking less care. So far, basic econ 101.
But despite the cost shifting and resulting demand contraction, premium prices have gone up as fast as ever.
“…the companies continue to press for higher premiums, even though their reserve coffers are flush with profits and shareholders have been rewarded with new dividends. Many defend proposed double-digit increases in the rates they charge, citing a need for protection against any sudden uptick in demand once people have more money to spend on their health, as well as the rising price of care.”
In competitive markets, sellers can’t typically set today’s prices based on where they expect demand to be in the future. If one of them did so, others would capture their market share by pricing based on current supply and demand conditions.
The dynamic should lead you to be particularly skeptical about plans that depend on private insurers responding to market signals (are you listening, Rep Ryan?). Republicans go on about how once everyone’s out there on their own shopping for insurance in unregulated, private markets, competition will drive prices down.
That’s how it works for bananas. It’s not the way it works for health insurance–folks are locked into plans through their jobs, there’s huge information disparities (their business model is to know who’s risky and avoid them), and most importantly, individuals have minuscule bargaining clout. So if you wanna shop for health insurance by yourself, just make sure your policy covers masochism.