California should embrace competition to promote better health insurance | Opinion
Following a depressingly familiar pattern, California is once again undermining health care competition in the vain hope that less competition will lead to lower prices. It won’t.
In its latest anti-competitive actions, starting Jan. 1, California’s Department of Health Care Services will be limiting competition for plans (called Medi-Medi plans) tailored to the dual-eligible population. Dual-eligibles are patients who are eligible for both Medicare and Medi-Cal (there are approximately 330,000 individuals on these plans throughout 12 counties). Depending on where they live, many patients will now have only one choice of insurer. Thanks to these new restrictions, health plans that have been providing quality insurance won’t be able to sign up new patients — not for any problem they caused, but because of a misguided government restriction.
Since California’s policies already undermine competition, patients will experience more of the problems that plague the state’s health care system: lower quality health care, fewer choices and higher costs.
New government regulations cannot fix the system’s flaws because imprudent government interventions have created many of the problems plaguing our health care system.
As Gallup has documented, Americans’ view of the quality and coverage of the health care system has declined while the share of health care expenditures directly funded by government has expanded. Even in the ostensibly private health care sector, the government is consistently imposing additional burdensome rules and mandates that limit the scope of private competitive providers.
As the government’s control has increased, the vibrancy and competitiveness of the U.S. health care system has diminished, as I outlined in a recent Pacific Research Institute paper. This is problematic due to the strong connection between robust competition and lower health care costs and higher health care quality. Worsening these outcomes, the growing government mandates are incentivizing unwarranted consolidation of private hospitals, providers and insurers, which further inflates costs for patients.
There has been a trend of declining numbers of independent doctor’s offices because hospital systems are buying them up. With less competition, the costs for office care visits for practices affiliated with a hospital system increase — by about 11% compared to independent practices.
Applied to hospitals, the historical evidence shows that when there is less hospital competition, prices are higher by between 20% and 30% on average. Similar to hospitals and doctors’ offices, premiums for beneficiaries increase when there are fewer health insurance competitors, even though provider compensation also declines.
Advocates also argue that a government health care monopoly provider will reduce the large amount of administrative waste plaguing the U.S. health care system. A single-payer health care system, they argue, eliminates profits and duplicative administrative costs, theoretically saving money and reducing waste. In practice, these savings rarely materialize.
Innovation — not bureaucracy — is the most efficient way to address the enormous administrative waste that plagues our health care system.
Failing to learn these lessons, the new California rule is limiting the number of allowable insurers for Medi-Medi plans within each county. For instance, new dual eligible patients in Yolo and Placer counties will only be able to choose between two plan providers starting in January: Partnership HealthPlan and Kaiser Permanente. The rule also actively obstructs organizations that are currently serving dual-eligible beneficiaries from serving new regions or expanding the number of beneficiaries they are currently serving.
It makes no sense for California to prohibit service from health plans that are successfully serving this vulnerable population. The reduction in insurance competition will likely increase costs or reduce the available services that the dual-eligible population can receive. Either way, patients will be harmed because the California Department of Health Care Services is limiting competition. Rather than thwarting competition, policymakers should focus on repealing the rules and regulations that harm competition and encourage consolidation.
Markets work best when policies incentivize transparency and competition, and health care is no different. Ultimately, reforms will improve the quality and affordability of health care when policies empower competition, not when they continually increase the scope and burden of government mandates.
Dr. Wayne Winegarden is the director of the Center for Medical Economics and Innovation at the Pacific Research Institute. Download the study at www.medecon.org.