Wussinomics: the state of competitive efficiency in private health insurance

Abstract

I believe that, in theory, a competitive insurance market should lead to efficient levels of care and efficient rates of growth in medical spending for the great majority of Americans, who are not poor and not stupid. Externalities apply to coverage and care of low income people, and there may be some misinformation, but for most of us most of the time things should work out as well as they can. But, despite my faith in this proposition in theory, I have been puzzled and sometimes distressed that the private health insurers in the United States have apparently failed to deliver on this promise. The contentious data on the rates of growth of private versusMedicare premiums shows at best equivalent growth for private premiums; private insurers have not been more successful than government in cost-containment (Holahan and McMorrow 2012). The more relevant measure of the rate of growth of insured spending per person (which adjusts for changes in cost sharing) is apparently unavailable on reliable basis, even from the CBO, but such measures as exist do not show large differences. And the debate about Medicare’s lower administrative cost and greater bargaining power totally misses the point that it is only the change in these factors which is meaningful, if anything is. Most importantly it is not relative to some also unsatisfactory government benchmark, but relative to its own ideal growth rate, that should be the basis of comparison. On all these scores, I believe we do not have positive