More from Krugman on why Blanche Lincoln and other small state Senators are fighting public option [View All]

[flpoljunkie]

June 22, 2009

Competition, redefined

Great catch by Digby, who quotes Sen. Blanche Lincoln about how terrible it would be if a government-run insurance plan undermined free-market competition, then links to this:

The Justice Department considers an industry to be “highly concentrated” if one company has 42 percent of the market. In Arkansas — Senator Lincoln should take note — Blue Cross Blue Shield has 75 percent of the market. If you take government self-insurance plans out of the equation, it’s higher. The state ranks as the ninth most concentrated in the country. Is it any wonder that insurance premiums have risen five times as fast as wages?
The truth is that the notion of beneficial competition in the insurance industry is all wrong in the first place: insurers mainly compete by engaging in “risk selection” — that is, the most successful companies are those that do the best job of denying coverage to those who need it most. But in any case, Arkansas is in effect a one-insurer monopoly state, with no competition at all — unless a public plan is created.

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.

http://krugman.blogs.nytimes.com/2009/06/22/competition-redefined/