Music on the floor: Will Increased Competition in Health Care Exchanges Actually Raise Costs?

Monday, 3 December 2012

Will Increased Competition in Health Care Exchanges Actually Raise Costs?

< class="photo full"> < class="photoCredit">AP Photo/Alex Brandon </div> < class="caption">

Accompanied by health care professionals, President Barack Obama speaks about health care, Wednesday, March 3, 2010, in the East Room of the White House in Washington. (AP Photo/Alex Brandon)

The Political Landscape?is a weekly conversation with National Journal writers, editors, and outside experts on the news of the day.

With President Obama's reelection, it became a near certainty that the major components of the Affordable Care Act, more commonly known as Obamacare, would be going into effect on Jan. 1, 2014. Primarily, by then each state is expected to have what's called a healthcare exchange.?

Essentially, these exchanges are an online marketplace for those who don't receive insurance through an employer or for those who work at a very small business. Various insurers will be required to provide information about their different plans on this online marketplace, and individuals can go there and, in theory, easily compare plans by price, range of coverage, etc.

It's been pitched as a way to not only bring insurance to many uninsured Americans, who have no easy way of finding plans, but also as a way to lower costs. The rational behind these lower costs? More competition. And transparent competition. In theory, the health care exchanges allow two things. One, it gives insurers an easy way to promote their plans. And two, it gives consumers an easy way to price compare.

Basic economic theory would say that more competition and less market monopoly leads to lower prices.

Maybe not, says Dana Goldman. Goldman is the Chair in Medicine and Public Policy at the University of Southern California, and the director of the of the Center for Health Policy and Economics at the USC Price School of Policy, Planning, and Development. He co-founded Precision Healthcare Economics, a healthcare consulting firm, and writes for the New York Times' Economix blog.

In a recent piece he co-authored, Goldman wrote, "In financial markets, we ask if banks are too big to fail. When it comes to health care, perhaps we should ask if insurers are too small to succeed."

Our show this week in two parts.?

Part 1:?We talk to National Journal health care reporter Margot Sanger-Katz. She'll explain exactly what these exchanges are, and how they're being rolled out. The department of Health and Human Services was sitting on many exchange regulations until after the election, so only now are we getting a sense of how this will unfold.?

Part 2:?We explore the economic theory behind these exchanges. Dana Goldman will explain why basic economic theory may not apply to health care markets, which, as he explains, are imperfect. And if health care markets are imperfect, why are we assuming insurance cost reductions will come from increased competition?

Check out our last episode, "Drones and Data: After Petraeus, After the Election."

Check out all episodes of the Political Landscape.