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Home Publications Blogs Beat the Press Medicare and Medicaid Could Increase Competition

Medicare and Medicaid Could Increase Competition

Monday, 01 September 2014 07:24

Austin Frakt had an interesting piece in the Upshot section of the NYT reporting research finding that show substantial reduction in health care premiums when there is more competition in the market. The implication is that prices could fall substantially in the exchanges where there are a small numbers of insurers and especially in states like New Hampshire or West Virginia where there is only a single insurer in the market.

At the end of the piece Frakt notes that more insurers appear to be entering the exchanges in 2015 than in their first year of operation. He also suggests some policies that the federal government could pursue to encourage more competition. In addition to the policies Frakt listed, in principle the federal government could also allow Medicare and/or Medicaid to offer plans for purchase in the market in areas with less than a specified number of insurers. This should ensure people the option to have a reasonably priced plan.

At the start of the piece Frakt refers to President Obama's pledge that his health care plan would lower family premiums by as much as $2,500 a year. It is worth noting that per person health care costs in the United States in 2014 are around 15 percent less than had been projected in 2008. This would be a savings in the neighborhood of  more than $2,000 a year for a typical family plan. Clearly not all of these savings can be attributed to the Affordable Care Act, but people are paying considerably less for health care in 2014 than had been expected in 2008.

Comments (6)Add Comment
written by Bob Hertz, September 01, 2014 9:00
I am on the side of the ACA, but I have to differ with the final paragraph of this posting.

a. Virtually all businesses are paying much more for health insurance in 2014 than they were paying in 2008. I am in the insurance business and I can get the numbers.

b. About 4 million persons are paying less for health insurance today, due to the subsidies in the ACA. That is a good thing, but it does not mean that costs have gone down.

c. I am afraid that your argument slips into Beltway logic. If spending was due to go up 20% and it goes up 15%, you call that a savings.

No, not in my book.

If premiums were $5,000 and they were projected to go to $10,000, but only go to $8,000, that is NOT savings.

Savings would mean premiums going to $4,000.
Dean Baker Proposes Stealth Revival of Communist Public Option for Health Care
written by Last Mover, September 01, 2014 9:35
In addition to the policies Frakt listed, in principle the federal government could also allow Medicare and/or Medicaid to offer plans for purchase in the market in areas with less than a specified number of insurers. This should ensure people the option to have a reasonably priced plan.

Better yet why not set it up like Medicare Part D or C to guarantee the government can't possibly use communism to compete unfairly with private insurers?

First require that government cannot negotiate drug prices and must pay full retail price. Second require that private providers get a fat subsidy to guarantee they can "compete" on a level playing field with government alternatives. Third, should any consumer be so unwise to actually choose a government plan, always give private insurers a chance to undercut the price of said plan to get the customer anyway with no money left on the table.

There, that should take care of it America. If you have any more questions about free market competition and how it works, just contact:

Health Care Anti-Competitive Rent Extraction Machine
No Option is Better than a Commie Public Option
United We Stand, One Provider for All
Consumer Surplus Vacuum Cleaner
Economic trends exist in the real world, not the beltway
written by Dean, September 01, 2014 10:28

we can show more than half a century of rapid health care cost increases. That was in the real world, independent of what people in the beltway think or said.

People in the real world should have expected this trend to continue unless they had secret information they have kept from those of us in policy circles. The fact that health care costs have risen much less than trend is a savings to anyone who knew the data and trend. You're welcome to use a different word if it makes you feel better, but that is the reality.
written by xteeth, September 02, 2014 7:48
Old news. New Hampshire will have five insurance corporations next year. Just as if the "free market" was involved in any way.
written by bob hertz, September 02, 2014 6:54
Dean, I think you missed my points.

Point no. 1: Any trend in overall health costs does not necessarily translate into lower premiums.

The premiums charged to an employee for his/her share of health insurance depend on the demographics of the corporation, recent large claims, insurance company pricing, and a lot of other things. I know health insurance from the inside, and overall cost trends mean very little to most policyholders.

Point No. 2: If my income in 2008 was $50,000 and my health insurance premiums were $5000 a year with a $1000 deductible.......and now my income is still $50,000 and my health insurance premiums are $6000 a year with a $2000 deductible....
in what way am I better off? Where are my savings?

Thanks for your input and review.
written by urban legend, September 03, 2014 12:35
Democrats in tight Congressional races -- who need enthusiastic workers from the base who do all the door-knocking and phoning to get out the vote -- would be smart to (1) suggest revived discussion of a public option and (2) propose specifically that people over 50 who cannot get insurance through an employer should be able to buy into Medicare through the exchanges. That these might seem like a break with Obama and the DC Democratic establishment will be a political feature in local races, not a bug.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.