Bryan Clapper: Key to healthcare puzzle is more free-market competition

Published 5:36 pm Friday, August 21, 2009

bryanWhy do we need government intervention to protect us from abuses by health insurance providers, but not to protect us from having a bad meal at a restaurant?

One of the underlying arguments for health care reform – specifically for some kind of government-run insurance option – is that without government intervention, health care insurance companies will continue to deny claims, drop coverage due to pre-existing conditions, and run nilly-willy over your personal freedoms.

But there’s no law saying that all chefs in restaurants must be, you know, good. I’ve had some horrible meals in restaurants, and I know lots of people who also have, and yet no law exists to protect me from bad restaurants.

Perhaps it’s because restaurants operate completely in the free market, and those who routinely serve bad meals quickly go out of business. If customers don’t like you, they go away.

The secret, then, to improving health care in this country is fewer laws, not more. Health insurance companies can’t compete across all state lines, and fewer of them compete for each customer than in some other countries.

This is a relatively small portion on the surface, because large companies can offer plans to employees in different states; but for the 18 million people who buy health insurance on the individual market, it could reduce their cost and create a more competition-friendly market.
For health insurance companies, it also helps build on one of the most important aspects of economic stability: diversity.

Let’s say you’re a health insurance carrier in Mississippi, where the rate of obesity among adults is 26 percent. You won’t make as much profit covering those individuals, because obesity is an exacerbating factor in just about every ailment known to man, and people who are overweight tend to spend more time in doctors’ offices. If you were able to offer coverage for individuals in Colorado or Massachusetts, then, where the rate of obesity is nearly half what it is in Mississippi, you’ll theoretically earn more per consumer. This would, in theory at least, make it cheaper for someone in Mississippi to buy individual coverage, since companies could spread out the areas from which they must make a profit.

With more competition among health insurance companies, when a patient is dropped due to a pre-existing condition that has nothing to do with what they’re being treated for, it won’t be the government who steps in, it will be competing health insurance companies eager to advertise how evil and uncaring their competitors are.

This won’t just create more competition among those vying for individually purchased plans, but employer plans, as well. Providers will be eager to advertise the shortcomings of other carriers in the hopes that people with employer-provided coverage will ask their company to switch to other companies.

The idea that more government fixes things is a false assumption, especially when it relates to the exchange of money for services.

Look at airline deregulation. When the government stepped out of trying to regulate airlines, what did we get? More airlines – from four major carriers to seven with market shares of 6 percent or more – and lower fares. Yes, while we may think air travel is incredibly expensive, a Cato Institute study found that airfare decreased 37 percent when adjusting for inflation during the 22 years after deregulation.

True competition – unfettered by government regulation or state-by-state rules – will fix many of the problems with health insurance. Can anyone think of an industry in which competition has hurt, not helped?

If you have a bad meal at a restaurant, you have dozens of other restaurants within a mile or two of your house to go to next time. With already so many regulations pinning down health insurance, you don’t have many options if you don’t like your current carrier.

Bryan Clapper is the general manager of Leader Publications. He can be reached at