Will the Government Option Increase Health Care Competitiveness?

One of the interesting ironies of the government option in the health care reform plan is that it is supposed to increase competitiveness in the health care insurance market. For those of us who have studied markets in a micro-economics class or read the Wall Street Journal, the key to increasing competitiveness has been to make it easier for competitors to enter into the market. When I look at the existing health care insurance market and compare it to the reform plan, I do not find any significant changes that will make it easier for companies to enter into the market. In fact a very good argument could be made that the increased regulations from the proposed Health Care Reform will make it even harder for companies or organizations to enter into the market.

Why Don’t the Health Insurance companies complain more?

When you consider the scenario that a government option could be the end of the health care insurance industry, you would think that the health insurance companies would be gathering up their supporters and flooding the airwaves with “public interest” commercials. The fact that we do not see the commercials tells me something. Although it is difficult to determine the insurance companies strategy, I think the insurance companies look at the government option as a likely failure. If the government option is modeled after Medicare the insurance companies are betting that they will be up against a very weak competitor. Up until this year Medicare was widely thought of as the high cost provider of health insurance and a poor model for state health care plans. The complaints about Medicare are fairly numerous. Unless something miraculous has occurred to Medicare, it is unlikely Medicare will be an adequate model for a new and improved health system. The biggest problem with this option is that it does not provide any incentive to improve efficiency at insurance companies.

If the government option is modeled after the Massachusetts or TennCare system, the insurance companies are betting that it will heavily subsidized and probably fail in a couple of years. TennCare was closed down because it failed at controlling costs.  The Massachusetts system has been effective at enrolling people but has not yet reduced the rate of health care cost increases. This leaves us with a scenario in which the government option fails to reduce health care costs and the people will demand the insurance companies to come and rescue us. It looks like a win-win situation for the insurance companies and an unnecessary detour for the people who desire a health care reform that actually gets us more bang for our buck.