Taxpayers will be best served by insurers with sufficient market
power to bargain down provider rates, but with not quite enough power
to keep the savings (“rents“)
for themselves. That is, we want low provider rates to translate into
low premiums. Though liberals may be skeptical that this balance is
achievable, it is not at odds with their objectives in principle. After
all, one of the arguments for the public option is that it would be a
large insurer with commensurately large negotiating power but would use
that power on the behalf of consumers.
How to balance the power of insurers and providers is far from
simple. Many have pointed to the alleged dominant market position of
insurers as a substantial source of high health care costs. However,
the health economics literature
supports the notion that recent increased market power of insurers does
not lead toward monopolistic pricing, but rather it provides a
counter-balance to the power held by hospitals and provider groups.
Moreover, insurance companies are partially exempt from federal
antitrust law for an important reason: so they can share rate-making
data. This function actually benefits small insurers who would not
otherwise have sufficient data to properly adjust premiums.
Paradoxically, removing the legal cover for data sharing would harm
small insurers more than large ones.
Read his whole post, which also has a good public choice analysis of the recent threat to repeal the exemption.