Lack of competition produces higher insurance costs

Main building, Hermann Hospital -- Houston, Texas 

The 10 Least Expensive Health Insurance Markets
[Via MedPageToday]

People in much of Minnesota, northwestern Pennsylvania, and Tucson, Ariz., are getting the best bargains from the healthcare law’s new insurance marketplaces: premiums half the price or less than what insurers in the country’s most expensive places are charging.

The 10 regions with the lowest premiums in the nation also include Salt Lake City, all of Hawaii, and eastern Tennessee. This ranking is based on the lowest cost of a “silver” plan, the mid-range plan most consumers are choosing.

The cheapest cost regions tend to have robust competition between hospitals and doctors, allowing insurers to wangle lower rates. Many doctors work on salary in these regions rather than being paid by procedure, weakening the financial incentive to perform more procedures.

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This is the sort of data we will begin seeing more and more of. There are reasons why insuracne costs are so different and it appears that a major one is how competitive the healthcare market is in n area, not how good the healthcare actually is.

We see the same trend in the most expensive areas of the country – lack of competition in the number of hospital systems.

It is fascinating that, even though Tennessee some of the lowest premiums in the country, even though it has a lot of people with severe health problems

Consolidation of hospital systems does not save us money.It increases insurance costs tremendously.

We hear about narrow networks costing people their doctors. But this is the flip side of the insurers having negotiating strength by being able to pick and choose networks.

Here we have examples of how having multiple hospital systems drops insurance costs substantially.

These competitive markets are quite different than in southwest Georgia, the second most expensive region in the country. Blue Cross Blue Shield of Georgia had no choice but to include in its network the Phoebe Putney Health System, which controls 86% of the market. The lowest premium in southwest Georgia is $461, two and a half times the rate in Chattanooga.

So, when there is a single system in the area, they can command very high prices raising the insurance rates. But when there are multiple systems, the insurance companies can negotiate much better rates, lowering insurance costs.

Yes, they then have a ‘narrow’ network but the expensive guys now have to make a choice – negotiate better rates or be left out.

This is how a free market approach is supposed to work. The balance of a narrow network versus substantially lower costs. How many people would stay with a doctor if they were paying $450 a month for that service versus $150?

These data demonstrate that the healthcare is not actually three times better. It is the lack of competition that permits hospital systems to charge so much.

Competition provides cost savings. A monopoly on healthcare produces huge costs. 

I would expect that the next step would be to offer insurance plans with different networks to people. So one could choose the $150 a month plan with a narrower network or pay $450 a month for a wider network.

We will not get there in one year, but as the market adjusts to the new paradigms, as people see that they are not getting 3 times the benefits and as hospital systems begin to have market pressure brought to bear, things will change.