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April 25, 2014

If You Like Choice, Competition And Entrepreneurship, Obamacare Is Not For You

By

Gene Sperling, former director of President Obama’s National Economic Council and former Assistant to the President for Economic Policy, argues that Obamacare should appeal to those who desire competition and choice in health care. But the very nature of Obamacare fosters neither.

Sperling claims that the Obamacare exchanges are competitive: “On average, there are 8 different health insurers participating in each of the 36 Marketplaces being operated by HHS, with as many as 169 plans for consumers to choose from.”

It’s not clear how Sperling derives his number of participating insurers but the best way to measure insurer competition is by counting the number of parent companies selling insurance, excluding subsidiaries. For example, Buick and Cadillac—both subsidiaries of General Motors—are not counted as two competitors in the auto market.

The Obama Administration recently made the same point in justifying its proposed (though, now withdrawn) new rules for the Medicare the Part D program. “Two subsidiaries of the same parent organizations offering plans in the same… region are not truly competitors as decisions concerning their operations are ultimately controlled by a single entity, or parent organization.” To measure “true” competition, then, one should count only parent companies participating within an exchange.  That calculation reveals that in the 36 federal exchanges, on average, coverage is offered from only 4.5 insurers.

At the state level, the exchanges are actually less competitive than the individual markets prior to Obamacare.  Comparing the number of insurers participating in the exchange with the number of carriers that previously offered individual coverage in each state, Edmund Haislmaier, my colleague at Heritage, found that nationally there is now 29 percent less insurer competition in the exchanges relative to the prior individual market. Only five exchanges feature more carriers offering individual coverage than in the pre-Obamacare era.

Even that measure of insurer participation overstates the extent of competition at the consumer level, as many insurers participating in exchanges don’t offer coverage in all areas of a state.

Thus, there is even less insurer competition at the county level. In one of every six counties in America (17 percent), the state exchange offers only one insurer–a monopoly.  For another 35 percent of counties, only two insurers offer coverage. In another 25 percent, only three insurers are selling coverage. To recap, consumers in more than half of the nation’s counties can “pick” from only one or two insurers on an Obamacare exchange.  In more than three of every four counties, competition is limited to three or fewer insurers.

There’s also a lack of choice at the benefits level. Obamacare’s essential health benefits package standardizes the benefits insurers offer, creating uniform policies that mostly vary only in terms of cost-sharing levels and provider networks.  Sticking with Sperling’s grocery shopper analogy, there might be two or three insurers offering coverage, but they’re just different brand names selling the same vanilla ice-cream–making any choice that does exist “illusory at best.”

Obamacare’s over-regulation and standardization of insurance is yielding predictable results: higher premiums. Another Heritage study found that 42 of 47 states* are experiencing significant increases in average premium costs—in many cases, over 100 percent—for individuals purchasing from the exchanges.

Sperling cites a CBO report that say premiums were “lower this year than originally estimated.” That’s nice, but it certainly does not mean that premiums decreased.  It merely states that their original cost projections were higher than the actual experience. Furthermore, highlighting New York as an example is somewhat misleading.  Obamacare is an improvement in New York mainly because that state adopted years ago the same misguided insurance regulations Obamacare has only recently imposed nationwide.  In other words, New York had already reduced competition and triggered higher premiums without the assistance of Obamacare.

Sperling goes on to applaud Obamacare’s exchanges for offering “consumers a simplified way to see, shop and compare health plans.” But despite costing about $5 billion to establish, the exchanges offer little beyond what the internet broker eHealthInsurance already did before Obamacare. In addition, they aren’t very transparent, for instance, the provider networks and drug formularies are hidden until you’ve enrolled in a plan, making it unclear whether your doctor is in network or your drug is covered.

Finally, Sperling highlights Obamacare’s end of “entrepreneurship lock,” meaning now people with pre-existing conditions can leave their job and start businesses without fear of coverage denial or overly expensive coverage. Yes, Obamacare ends “entrepreneurship lock,” but it then locks millions of Americans into one-size-fits-all, government-sponsored health care. Entrepreneurship lock could be fixed by a single-payer system too, but supporters of market-oriented health care value consumer choice.

So if you believe in the market-oriented values of competition, choice and entrepreneurship, it’s time to repeal and replace Obamacare.

 - Alyene Senger is a Research Associate at The Heritage Foundation.

Originally appeared in Forbes

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