Obamacare = The Death of Small Health and Dental Insurance Companies?

From PBS.org - Steven Horwitz

It's so good and so concise that I'm just going to copy and paste it over. Howitz is the man!

No piece of legislation as complex as the health care reform bill can avoid a whole variety of unintended consequences. Elsewhere, I and others have noted that a provision in the law appears to create strong incentives for businesses not to hire poorer, single mothers who will need subsidies to afford family-covering health insurance. Among the other unintended consequences of the health care reform legislation are its possible effects on small health insurance providers.

The support for the bill coming from the major insurers should be one piece of evidence that they expect it to be good for them, particularly due to the provision that requires Americans to buy health insurance. In addition, as is the case with almost all regulation, larger firms are better able to absorb the fixed cost of compliance than are smaller firms. Given that this bill authorizes the hiring of over 16,000 new IRS agents to enforce its tax code provisions, such compliance costs are sure to be high, which will have a higher relative burden for the smaller firms.

The bill's mandate to cover pre-existing conditions will work in a way similar to the fixed costs of bureaucratic compliance. Such coverage isn't really "insurance" as pre-existing conditions have a high probability, if not certainty, of requiring expenditures. It's as if you wanted to buy insurance on a car that was near certain to have brake failure. You aren't buying "insurance," you're getting a straight subsidy of your medical costs. In order to cover the known costs associated with such conditions, firms would normally have to raise premiums on other customers who are genuinely buying insurance. If the new law limits that, the fixed costs will have to come from elsewhere in the firm, much like the compliance costs. And it is big firms who can better absorb these costs than smaller ones.

The law's mandate that no "stand alone" company can sell dental insurance will drive small dental-only insurers out of business as well, leaving that market to the big firms. The result of all of this will be increased concentration and market power in the medical insurance industry, which is sure to lead to more questionable behavior and more complaints about insurers.

The irony, of course, is that the very same progressives who have supported this bill will be summarily outraged by the decline of small health and dental insurers and the oligopolistic behavior of the remaining large ones. Not that they will accept it, but they have no one to blame but themselves for supporting this bill as its changes will be the cause of those problems.

And sadly, you can bet that their proposed solution will not be opening up interstate competition and repealing elements of this current bill, but calling for the even worse solution of a single-payer system as the very market they destroyed continues to get more inefficient.


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