Med Mal Price Gouging?

I have an op-ed in today’s Wall Street Journal on medical malpractice insurance premiums.  Here’s a sample:

On its face, price gouging is a peculiar explanation
for recent increases in insurance premiums. Is greed new to the world?
Were insurance companies followers of Mother Teresa just a few years
ago? If greed and gouging are the explanations for rising premiums, why
did the St. Paul group — one of the nation’s largest suppliers of
medical malpractice insurance — pull out of the market in 2001? Were
the profits from all that gouging just too much for St. Paul’s guilty
conscience? And consider that almost half of doctors are insured
through mutual, i.e., doctor-owned, insurance companies. Are the
doctors gouging themselves?

The gouging explanation fails more than the credulity
test. Price gouging can work only if firms have monopoly power — so if
gouging is the explanation for higher premiums, we would expect to see
higher premiums in states with less competition. My student, Amanda
Agan, and I tested this hypothesis in a study released two days ago by
the Manhattan Institute. Contrary to the gouging hypothesis, we found
that a 10% increase in industry concentration reduces premiums
by $2,200. The result makes sense if we remember that, to increase
market share, firms don’t raise prices but rather lower them. Wal-Mart
has grown into the nation’s dominant retailer by lowering prices, not
raising them.


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