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Normal markets

In a normal market, any person who wishes to buy the commodity for sale may
do so at the same price as any other person. In a normal market, price is
king. The product or service is available to any purchaser with the means to
pay the asking price. Supply and demand establish price; that’s a normal
market.

The United States health insurance market is not, however, “normal.”
Insurers actually have the right to refuse to sell their product, health
insurance, to anyone they wish. And how do they determine to whom they will
sell? They refuse to sell to the feeble, the ill — the risky patient. This
is not a normal market. It is a manipulated market. It is a failed market.

Price is not king; medical risk is king. Insurers compete by insuring the
healthiest populations — by limiting the populations to whom they will sell
insurance. It is this limitation on the scope of the market that identifies
“market failure.”

Market failure

Market failure is recognized by this triad: 1. when prices go up, 2. when
profits go up, and 3. when availability goes down. The continued increases
in health insurance premiums are well documented (prices go up); the
profitability of insurers is well documented (profits go up), and the steady
increase in the number of uninsured is the manifestation of decreased
availability.

Insurers claim to compete in a very competitive market. And they do compete;
but only for the healthiest populations. There is no competition to see how
many diabetics they can enroll, or how many stroke victims they can insure.
The notion of “un-insurability” has become so much a part of our landscape
that willingly enrolling the ill in a health insurance plan sounds almost
absurd.

And so I find myself both pitying, and disgusted at, those who believe
the U.S. health insurance industry functions in a normal market, or that its
profits are the result of normal competition. They are believing and
repeating the biggest lie in the business world today. It’s a subtle lie, to
be sure, but still a lie.

It amazes one even further, that the majority of American businesses, large
and small, who do compete in normal markets, have bought into the
misinformed perception, the hype, that the health insurance industry
functions in a normal market. Most American businesses work hard to make
their products available to as wide a market as possible. They do not single
out any populations as “unworthy” to buy their products. They go to work and
compete based on price; they build as large a market share as possible — no
limits.

But for whatever reason, they placidly accept the rhetoric of the insurance
industry as gospel and continue to pay ever higher premiums and accept ever
diminishing benefits. They struggle on, blinded by who knows what, believing
that insurers function in the same kind of market they do, a normal market.

But it just ain’t so. Insurers don’t play by the same rules.

The remedy? A normal market.

Normal markets have been identified since before Adam Smith as having five
essential characteristics:

1. a uniform product (beans, steel, cotton, etc.),
2. universal availability (the product is portable and anyone who wants it at
market price can have it),
3. readily available knowledge of product and price (its easy to know what
you are getting, no fine print),
4. easy entry to and exit from the market (thus establishing an adequate
number of suppliers to make the market competitive), and
5. price sensitivity (meaning that suppliers compete on price and not on some
other measure, the way gangs compete for turf using guns, or insurers c ompete
for privilege using lobbyists).

Market protection policies

Simple health related policies would “normalize” the U.S. health insurance
market. At first they look like, and sound like, “patient protection
policies,” but in reality, they are “market protection policies.”

In order to have a uniform product, simply define a minimum benefits package.
Other packages may be made available, but a standardized minimum package of
benefits should be available to all.

In order to have portability and universal availability, simply enforce
guaranteed issue and community ratings.

(Enforcing guaranteed issue means that something must be done about
free-riders. In healthcare, as in few other industries, free-riders are
potentially very, very expensive. Free-riders refuse to contribute to the
overall expense, but then expect first class service when they need it.

The only real way around this problem is mandatory enrollment — an individual
mandate to enroll in a health insurance plan — even if it is in the minimum
plan. Most uninsured can afford to pay a reasonable premium. The large
majority of uninsured households have at least one employed wage earner.
Many have two. But because some cannot afford premiums, this means
subsidies. But even these subsidies will be cheaper than the secondary costs
associated with free-riders; the ongoing management costs of underwriting,
cost shifting, and so on, and the medical costs of inappropriately accessed
emergency care.)

In order to promote ready knowledge of product and price, once again, there
is a simple answer. It is to have a standard minimum benefits package. It’s
standard. There is no question about what’s in it. There are no hidden
exclusions, or deductibles, or caps on care. Everyone knows what’s for sale.

Easy entry to and from the market means we have an adequate number of
insurers to assure competition. Does the U.S. have an adequate number? Some
say yes, some say no. I don’t know what that number needs to be, but it has
to be “enough to support choice.” A better choice, adequate choice, often
means a better price.

Price sensitivity means, as stated before, that insurers compete on price and
not on the ability to discriminate against those with illness. Here again,
enforcement of guaranteed issue and community rating, along with mandatory
enrollment, eliminate the need to compete on parameters other than price. A
uniform benefits package means that insurers must provide the standard
benefits package at competitive prices.

Summary

Insurers are entitled to a normal profit provided they earn it in a normal
market. But they should never delude themselves that the present health
insurance market is a normal ma rket. Insurers can and do select the
populations they will insure. That is not the same kind of competition that
most businesses compete in. It results in a failed market.

The remedy is simple. It is “normalization” of the health insurance market.
This can be accomplished by assuring Choice, enforcing Mandatory enrollment,
Guaranteed issue, and Community rating, and defining a Uniform benefits
package. Almost any healthcare system that includes these five “market
protection policies” will succeed.

Sel Fillerup