Tuesday, December 21, 2010

When monopolies aren't all that bad

There are some pretty big ramifications for this, and not just in my home state of Michigan:
The case is viewed as a test for the Obama administration’s introduction of the federal health care law, which is aimed at spurring competition and driving down costs.
About half the states in the country, including Alabama, Rhode Island and Iowa, share circumstances similar to Michigan’s, in their relationships with a big single insurance carrier. Proponents of the new legislation have long argued that these dominant companies could subvert the competitive goals of the exchanges planned for 2014, which are intended to foster new business and cheaper coverage.

Officials “have been struggling for a while with the fact that in health insurance markets, small players are not able to enter and expand in a way to make them significant competitors,” said Jonathan M. Grossman, an antitrust lawyer at Cozen O’Connor. “Nobody can look at the suit against Michigan and say they didn’t put everybody on notice.”

Regulators worry that this prevailing dominance in markets across the country is a formidable obstacle. “Once you have a health plan that is that large, it’s really hard to change the dynamics of the market,” said Robert W. McCann, a health care lawyer in Washington at Drinker Biddle & Reath. [...]

Blue Cross drew the attention of federal prosecutors because of its use of what are known as most-favored-nation clauses in the contracts it signed with dozens of hospitals. Prosecutors charged that Blue Cross squashed competition by demanding that hospitals charge as much as 40 percent more to rivals, and it was even willing to pay hospitals more to sign these contracts.

That practice seems to have stymied competition. Priority Health, the insurer owned by Spectrum Health, says it has not been able to negotiate reasonable contracts with hospitals in places like Lansing. Blue Cross says it is a business decision being made by Priority Health to stay out of any market.

As insurers go, BCBS of Michigan isn't as bad as some...which is not the same as saying that they are great, having raised premiums by 'only' 88% from 1999 to 2009 - although that's lower than other states, a majority of which "more than doubled". I can almost understand what a supposedly nonprofit organization is doing writing most-favored-nation (MFN) clauses in their contracts with Michigan hospitals; as an insurance provider that dominates the market in a government-sanctioned-Ma Bell-sort-of-way, they have to find a way to pay the bills while retaining their self-proclaimed status as a “de facto insurer of last resort.” I understand that. But I'm kinda scratching my head, though...if the intent is to promote a well-regulated, competitive market among insurers that drives down prices, doesn't BCBS' lower rate increases - in its current state as Michigan's largest and most primary provider - put a shadow over that intent?*

Makes me think that this will do more to please free market enthusiasts than to cut insurance costs.

If we have to have that additional layer of business between doctors and patients, wouldn't it be better to have to work with a single large, market-dominant insurer? If a state charters a single provider - giving them a virtual monopoly, allowing for better government oversight/regulation while guaranteeing coverage at lower rates - who beyond a few locked-out competitors and a some free market idealists would object?**

Aside from that, what other price controls are being put into place, if any? Are we setting any standard medical service pricing? Pharma price limits? When it comes to controlling medical costs, I'd like to know that there's more going on than just some variation on the Underpants Gnomes' business plan.

Financial Times article here
Bloomberg article here
DOJ press release here

*I'll have to find some information about rate increases in states with more than one ginormous provider for comparison purposes. My hunch is that those states haven't seen overall rate decreases.
**Why not a single-payer system, even? It's cheaper to administer, cuts out the insurer as the middleman...

(edited for grammar, clarity)


  1. The real key is discovering how they've arrived at an 88 percent rise in premiums (as opposed to 100 percent).

    Are they being subsidized in some fashion, due to their specially carved tax-exemption?

    Are Michigan tax-payers basically footing the bill in other ways? Are federal tax-payers?

    If they've genuinely found a means by which to lower the price of what they're paying for, then we need to know what that is.

    To the extent that this information remains obscured or invisible precisely because they're state-sanctioned monopolists, that's an argument against their role --premiums could rise at the same or higher rate than other states, and we wouldn't know why or how to stop it.

  2. If they've genuinely found a means by which to lower the price of what they're paying for, then we need to know what that is.

    Perhaps freezing out the competition allows BCBSMI to better control service delivery rates, in that providers don't have much choice if they don't like the compensation BCBSMI offers.

  3. Perhaps...but perhaps not.

    Perhaps they're just leveraging to meet shortfalls, and expect bailouts later.

    It's a huge assumption.

  4. Still, given BCBSMI's quasi-government-chartered-sanctioned status, its success in keeping rates lower makes a case for centralized control of the health care market instead of opening it up for competition.

  5. Are these premiums actually lower, or are they just not rising as fast? Did premiums start high to begin with?

    We need data!