Competition Lacking Among Private Health Insurers

President Barack Obama talks about the the Afghan elections, Friday, Aug. 21, 2009, outside the White House in Washington, prior to boarding Marine One and departing for the presidential retreat at Camp David, Md. (AP Photo/Alex Brandon)

(AP)

One of the most widely accepted arguments against a government medical plan for the middle class is that it would quash competition — just what private insurers seem to be doing themselves in many parts of the U.S.

Several studies show that in lots of places, one or two companies dominate the market. Critics say monopolistic conditions drive up premiums paid by employers and individuals.

For Democrats, the answer is a public plan that would compete with private insurers. Republicans see that as a government power grab. President Barack Obama looks to be trapped in the middle of an argument that could sink his effort to overhaul the health care system.

Even lawmakers opposed to a government plan have problems with the growing clout of the big private companies.

"There is a serious problem with the lack of competition among insurers," said Republican Sen. Olympia Snowe of Maine, one of the highest-cost states. "The impact on the consumer is significant."

Wellpoint Inc. accounted for 71 percent of the Maine market, while runner-up Aetna had a 12 percent share, according to a 2008 report by the American Medical Association.

Proponents of a government plan say it could restore a competitive balance and lead to lower costs. For one thing, it wouldn't have to turn a profit.

A study by the Urban Institute public policy center estimated that a public plan could save taxpayers from $224 billion to $400 billion over 10 years by lowering the cost of proposed subsidies for the uninsured, while preserving private coverage for most people.

"Right now, there's no incentive for insurers or big hospital groups to negotiate with each other, because they can pass higher payments on through premiums," said economist Linda Blumberg, co-author of the report. "A public plan would have the leverage to set lower payment rates and get providers to participate at those rates."

"The private plans would come back to the providers and say, 'If you don't negotiate with me, you're going to be left with only the public plan.'" Blumberg continued. "Suddenly, you have a very strong economic incentive for them to negotiate."