Monday, May 7, 2012

Upon Further Review: The ObamaCare Argument of Private Health Insurance Monopolies Rebuked

Please recall for a moment an argument used during the ObamaCare debate: There is a serious lack of competition among health insurers within the differing and several states. That is, the debate point implicitly and explicitly alluded to many [if not all] states having one insurer dominating the market. Examples such as Hawaii, Maine, Vermont, Alabama and Arkansas were mention where one insurer controls 70% or more of the market place . That more competition was needed and government provided health insurance would create a competitor.

Upon further review, the argument/debate point mentioned above made for a good story albeit fantasy. As the story goes, a monopoly exists [the villain] and the white knight on the stallion [politico through the mechanism of government] will charge in and vanquish the evil doer. Problem is, the statistics used to frame the monopoly position of particular private insurers, and the supposed lack of competition thereof, is incorrectly portrayed and merely so much political theater. How so? (1)

The Obama Administration and other advocates of government provided insurance used a single study made in 2008 by the American Medical Association (AMA) entitled Competition in Health Insurance to frame their argument of the existence of wide spread private insurance monopoly in the differing states. Problem is, the study based its statistical outcomes on less than one half of the health insurance market.  Ops! That is, the study did not include employer provided coverage that are self insured plans. 

Not included in the study were plans where the firm acts as the insurer through self-insurance and pays the bills from the firm’s resources. The self-insured plans hire an administrator (many times an insurer) to handle the every day administration of the plan such as claim payments, enrollment processing, etc. however the firm itself acts as the third party payer i.e. the insurer. Employer provided self insured plans make up over half, approximately 55%, of the health insurance provided in the United States. (2) (3)

Economist John R. Lott, Jr. crunched the numbers and found that the 70% (or even higher claim) of the market controlled by a single company in the differing states is really 36 percent when the entire insurance market is taken into consideration:

“We can look at the 43 states for which the AMA compiled data ranking them with market share held by the two larges insurance companies. That pattern is fairly similar. On average, over 53 percent of people with insurance in those states get their insurance from companies that self-insure. For Alabama, instead of the “[Obama] almost 90 percent is controlled by just one company,” as the president claims, the correct number is just 36 percent. And the second-largest company has 2.1 percent of the market.

Even with the “almost 90 percent” number, it is worth noting that the president rounded that up from the actual share in the full insurance market of 83 percent. The president just wasn’t happy to claim that the largest insurance company in Alabama had an 83 percent share when the right number was 36 percent, but he had to go further and raise it to “almost 90 percent”. On top of that, in his attacks on for-profit insurance companies, he couldn’t even acknowledge that Alabama’s largest insurer was a non-profit company [Blue Cross Blue Shield].” (4)


(1) President Obama, weekly address, 08/22/2009,


(2) American Medical Association, 2007, “Competition in Health Insurance”,

http://www. study_52006.PDF

(3) John L. Lott, Jr., Debacle, pages 141-145

(4) John R. Lott, Jr., Debacle, page 143.



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