 |
| QueBeck Insurance "Should insurance companies compete with each other?" |
The US is
justly proud of its reputation as the home of modern capitalism and has
promoted the idea of free markets to skeptical countries around the world. The
fact that a bubble in the property market fuelled this recession does not
change the philosophical power of the US economic model. When it works
properly, the free market pushes businesses to compete. This improves the
quality of service and keeps down the price. The consumer benefits. All federal
government need do is intervene when there is clear evidence of a company
abusing its dominant position to damage the consumers' interests.
Unfortunately, under the last administration, antitrust enforcement was scaled
back. Worse, there were deeply entrenched monopolies and cartels that could not
be investigated or regulated. The leading example of this immunity is enjoyed
by the insurance industry. Some sixty-five years ago, it was exempted from
federal antitrust laws by the McCarran-Ferguson Act. This is a sad example of
corruption in government. Vested interests bought enough votes to get the Act
passed. Lobbyists' money has kept the immunity in place ever since.
Why is this
immunity as bad thing? Competition improves choice. Given a reasonable number
of companies competing in the same market, each must offer features to
distinguish their product from the others. Once consumers see one product is
better, they will transfer their business. The competitors must therefore match
or improve on those features to win back market share. If there's no effective
competition, an artificially small number of products will be offered. The
companies will agree not to compete on quality and price which rigs the market
and divides it up between the suppliers. In the insurance market, patients have
been paying artificially high prices. Doctors have also been paying inflated
prices for their medical malpractice insurance. At a time when the costs of
healthcare and drugs have been rising faster than inflation, this is penalizing
the US consumer and the taxpayer who often ends up subsidising payment of these
inflated prices. There is no justification for retaining this immunity.
Yet, the health insurance industry is absolutely opposed to
reform. They see no reason why they should be bound by laws applying to
virtually every other business in the US. The fact this opposition is so
aggressive shows how much excessive profits depend on maintaining it. If
premium rates did come down and the insurance companies had a reason to oppose
price increases from doctors, hospitals and the pharmaceutical industry, there
would be more efficiency and patients would benefit from better treatment at
lower prices. It should not be a partisan political issue to repeal the
McCarran-Ferguson Act. Both Democrats and Republicans should want to see better
business practices in all parts of a free market system. Sadly, the money is
flowing and there's little sign of enthusiasm in Washington for making this
simple change. It does not have to go into the hugely partisan healthcare
reform package. It can be a short standalone bill, but one with the capacity to
produce real savings in premium rates at a time when unemployment is high and
the problems of underinsurance and no health insurance are reaching epidemic
proportions.