Notes on Balto

There are a few things I note about Balto's article "Why a Public Health Insurance Option is Essential."

If I understand is argument correctly, according to Balto, the problem with our current system, and the reason we need a public option centers around issues of competition. His central claim is that, currently, there is not enough competition in the private health insurance industry to ensure "consumer choice" and "honest competition." He supports this claim with the following evidence, which is fairly convincing:

Health insurance markets are extraordinarily consolidated at the state and local level, according to the American Medical Association. In 39 states two insurers control at least 50 percent of the market, and in nine states a single firm controls at least 75 percent of the market, the AMA found. In 2007 the group reported that almost 95 percent of more than 300 metropolitan areas are highly concentrated.

He reminds us that

No competitor likes competition, especially when they are able to exercise market power, avoid regulation, and reap supracompetitive profits.

Clearly, the way Balto sees it, or the way he is constructing it, we have these big insurance companies that are behaving, essentially, like monopolies. The story that Balto is telling is a simple one and it speaks to liberal or progressives like me: the little guy (the consumer) is getting screwed by the big guy (in this case, the few private insurance companies that have all the control). The "balance of power," as he puts it early on in the article, is skewed in the direction of the powerful (the private insurance industry). Consequently, the government must act to ensure that consumers don't continue to get screwed.

Now, here are a few important questions:

1. How did we get to the point where we have so few health care providers in all these states? Why is the private health insurance industry is so consolidated?
2. What are the other options for shifting the so-called "balance of power" and countering the consolidation problem?

(And here is a side question: what are my health care provider options in RI? According to the Office of the Health Insurance Commissioner's "Consumer Assistance" webpage, if you want to buy your own health insurance in RI ("direct pay"), "Blue Cross Blue Shield of Rhode Island (BCBSRI) is the ONLY insurer at this time that offers direct pay plans in RI." As far as employer-based insurance plans, it appears, from this page, that there are three options in RI: Blue Cross/Blue Shield, United Health Care, and Tufts Health Plan. Is three a reasonable number for a state with a population our size? [Hard to say, I have nothing to compare it to.] And how do the numbers break down when it comes to market share? )

In response to the first question, according to Balto, the high level of consolidation occurs for a few reasons.

1. "The entry barriers to these markets are substantial: employers are reluctant to switch plans and information is not transparent making it difficult to compare plan offerings. The time and cost to switch plans is substantial."
2. "...dominant insurers make entry all but impossible by locking up providers through most favored nations arrangements or all products clauses that make it difficult for them to facilitate entry by making a more attractive deal with a new entrant."

As to the second question, what are other possible solutions to the problem of consolidation?Balto lists two:

1. normal market forces will correct the problems eventually (won't happen, he says, again, because barriers to entry are too high)
2. antitrust legislation against health insurers will create more transparent markets (won't happen, he says, because during the past 8 years, under the Bush folks, no anti-trust legislation was filed; furthermore "any antitrust action could correct harm in only a single market and would take several years and a substantial dedication of resources.")

Thus, Balto brings us to the conclusion that creating a public option is the best way to take on the problems of consolidation, lack of competition, and egregious deceptive practices. Why does he believe the public plan will work?

1. A government-mandated public option will be able to break into markets otherwise closed to new entrants.
2. Because public plans (e.g. medicare) have lower administrative costs and no need to generate a profit, they are cheaper and, thus, will force private insurers to get more competitive. Since private health insurance companies will have to compete with the public plan, they will be forced to try to contain skyrocketing premium prices (which, he argues, are at least partially a result of high profit margins: "From 2000 to 2007, the 10 largest publicly- traded health insurance companies increased their profits 428 percent, from $2.4 billion to $12.9 billion annually.")

Additionaly benefits of the private plan, not related to addressing the problem of consolidation, as Balto sees it:

1. A public plan does not have "any incentive to flout or manipulate regulations. Its concerns are not profit, but the public health."
2. "a public plan will set a model of consumer protection compliance, not abuse."

In sum, he argues,

Overall, competition from a public plan would force insurers to respond to market forces, reducing prices and improving consumer protections.

In sum, Balto's argument applies the logic of market economics to the problem of health care. It's not that we need a public option to ensure that all Americans have affordable health coverage (although, to be fair, he does say this once in the article: "As a society we have an obligation to make sure people have access to affordable health care."). It's not an altruistic argument he's making. It's an economic one: a public plan will restore competition. This is an interesting strategy for a liberal or progressive to take. I would expect an argument more along the lines of "it's the right thing to do." Instead, I get phrases like "revives genuine competition"

or "offering Americans a meaningful choice." Words like "competition" and "choice" are, of course, what Lazere refers to as cleans--they are words that evoke positive images and feelings.

Two final things:

First, Balto does address the primary concern expressed by those who oppose a public option: that a public plan "will ultimately lead to the demise of the private health insurance market." Essentially, he dismisses these concerns by saying "Their arguments are inconsistent with the economic realities of these markets." In response to the argument that we do not typically create public firms to create more competition in private markets, Balto argues that the health insurance market is different from other markets and in response to the argument that a public plan will act in predatory ways, he responds that private insurers have plenty of "reserves" to draw on as they learn how to compete with this public player. I feel like he treats these concerns a bit too lightly, though. I also find the argument that we do not create public entities to create more competition in private markets compelling.

Second, a friend recently brought up the problem of consolidation and argued that the real problem is that states or the feds make it difficult for private insurance companies to operate across state borders. In other words, legislation is the thing preventing competition and, consequently, greater transparency, in the private insurance industry. And sure enough, one of the respondents to Balto's article writes:

If in ... “39 states two insurers control at least 50 percent of the market, and in nine states a single firm controls at least 75 percent ... then the easy answer is to open up the borders and sell policies across state lines. Get rid of all those junky minimum requirements that state legislatures insist are necessary but fail to deliver value... just cost.

If this is the case, then Balto's entire argument falls to pieces. We might, first, allow private insurers an easier time entering markets. If we find that it is still too difficult for new firms to gain a foothold, we might then push for a public option. Balto does not mention the issue of laws that might restrict movement across borders and state lines at all in his article. He chocks the entire concentration problem up to impossibly high barriers to entry and the "provider networks" that the dominant players set up to make it difficult for newcomers to get a foothold. This might be an example of what Lazere calls selective vision--leaving out facts that might contradict his argument.

Final thoughts: so much of this argument hinges on the necessity of restoring competition. His entire argument operates on the playing field of health care is a good that can be delivered most efficiently by markets. His is a market-based argument, despite the fact that he is arguing for a public option. But one could argue that if private players couldn't get enough Americans covered in a fair and affordable manner, why would introducing one more player make a difference? The problem is not how many players there are, the problem is that the players are competing with one another in the first place. A single-payer system would ensure that we are all covered, if that is the goal.

Also, I am not persuaded that the public option ISN'T a backdoor strategy towards a single-payer system (and if so, why not just propose the single-payer system now?). The other respondent who wrote in at the bottom of the article writes:

The president has repeatedly said that if you like your private insurance, you can keep it. For many the reality is quite different. Many private employers will drop their private plans leaving their employees no choice [but to accept the public plan]. The Lewin Group (2009) estimates that one-third of Americans will be enrolled in the government plan, whereas only 28.8 percent will remain in private plans (down from 55.7 percent). And those who keep their private insurance will pay higher premiums [in order to make up what he argues will be under-payments made by the public option].

I am persuaded by this. But I need to look into it more (and The Lewin Group might be a source worth looking into). The question employers will ask is this: which is cheaper, opting out of insuring my employees and paying the mandatory tax or continuing to offer employer-sponsored plans? If the cost of ensuring them myself continues to grow in order to make up so-called under-payments by public plan participants (question about this), then employers will have to outsource their employee health plans and pay the tax (that tax better be pretty high if g'ment wants employers to continue to offer employer-sponsored health care).

One last thing: that respondent who cited a study by The Lewin Group--apparently The Lewin Group, whom Republicans have been rallying to their cause to defeat the public plan, has a what Lazere would refer to as a conflict of interest: they are owned by a private insurance company (United Health Group, my insurance provider!). Take a look at this ad that was created by the Service Employees International Union (SEIU). Of course, SEIU is a liberal group with its own agenda. You can also look at the article that exposed all this, from The Washington Post.

(How long did it take me to do all this work? Two hours.)