The Five Deadly Sins of Private Health Insurance

One of the hallmarks of the American economic system is our commitment to the idea of competition. We believe in it so sincerely that we even have anti-trust laws with criminal penalties for violators who try to monopolize an industry.

So why is health care different? Why would anyone think monopoly would work better in the provision of medical care or health insurance? The likely reason is that in health care we are not getting the benefits from competition that we receive in markets for other goods and services.

The reason for that is unwise government regulation.

In the market for health insurance there is quite a lot of superficial competition. More than one third of seniors choose among competing Medicare Advantage plans in an annual open enrollment. The same thing happens in the (Obamacare) exchanges that were explicitly designed to be competitive markets. Federal employees, along with the employees of most state and local governments and many colleges and universities, have dozens of health insurance choices. So do employees of many large companies.

So what’s going wrong? Here are five problems.

1. Patients enroll in the wrong health plans. In his book Sick to Debt, Peter Ubel finds that “around 40 percent of people with chronic illness choose plans that end up predictably costing them more than alternative plans.” Why is that?