Protecting Monopoly Power

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It’s rare that a public-policy proposal manages to please three-quarters of the public. A government-run healthcare option has managed to do just that, according to a recent poll by CBS News and the New York Times. Seventy-two percent of respondents, including fifty percent of Republicans, said they favored the creation of a public healthcare plan similar to Medicare that would compete with private insurance plans.

So how is it that so many legislators, even Democrats, have expressed opposition to the public option? Paul Krugman has a guess:

In fact, I may have a new hypothesis about the political economy of the health care fight. One thing that’s obvious, if you look at the balking Democrats I chided in today’s column, is that almost all of them come from states with small population. These are also, by and large, states in which one or at most two private insurers dominate the market.

So here’s a suggestion: while the opponents of a private plan say that they’re trying to defend market competition, what they’re actually doing is defending lucrative local monopolies.

Krugman cites Sen. Blanche Lincoln (D – Ark.) as a good example. Lincoln rejects the public option because it “usurps that ability to compete in the marketplace.” Meanwhile, Blue Cross Blue Shield has a 75-percent share of the Arkansas market, and healthcare premiums skyrocketed 66 percent between 2000 and 2007.

Krugman’s column today also mentions the bogus arguments of Sen. Kent Conrad (D – N.D.). According to a recent GAO report, Noridian/Blue Cross Blue Shield of North Dakota controls 91 percent of the small-group-health-insurance market, which covers small businesses.

A cursory glance of the rest of the GAO report suggests that the legislators most opposed to the public option, allegedly to protect market competition, come from states with the least competitive markets. The prize on this score would have to go to Sen. Richard Shelby (R – Ala.), who recently proclaimed on Fox News Sunday:

[W]hen the government’s involved more and more in the details, and you start the one pay deal, and you’ve got the government competing with private enterprise, with all the incentives government has and the power, they will destroy the marketplace for health care . . .

Blue Cross Blue Shield’s share of Alabama’s small-group-health-insurance market: 96 percent.

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