How the Left and the Right View the Race to the Bottom

Jo-Carolyn Goode | 9/23/2013, 2:21 p.m.
Imagine an idealized model of the health insurance marketplace in which there are only three sets of variables:
John Goodman

By John Goodman

Imagine an idealized model of the health insurance marketplace in which there are only three sets of variables:

Premiums

Covered benefits

Access to providers

In this simple world, these are the only choices insurers have. They cannot tell providers how to practice medicine. They don’t negotiate special discounts. Once they decide what fee to pay, providers can join or not join their networks. In what follows, I will assume that higher fees attract more doctors and hospitals to a network and that means greater access to care. Lower fees have the opposite effect.

Now, you could conceivably have market competition for all three sets of variables. You could also have government regulate all three. But if you want robust competition,* you can only regulate one of them.

If the government sets the premiums, for example, the only way insurers will be able to compete robustly is by offering various tradeoffs between benefits and access to providers. One insurer might offer a rich package of covered benefits but access to a very narrow range of providers. Another might offer a broader network of providers, but more limited benefits, etc.

Alternatively, the government might choose to regulate access, say, by requiring insurers to include in their network every doctor licensed to practice medicine. In that case the only way insurers can compete is by offering various options with respect to benefits and premiums. For example, there might be a rich benefit package and a high premium, or a limited benefit package and a low premium, or various tradeoffs between premiums and benefits.

Now here is the strange thing about how left-of-center health policy wonks think and it is reflected in the ObamaCare exchanges. Since they want competition in the exchanges, they can only regulate one of the three sets of variables. Which one do you think they choose?

Answer below the fold.

This sky, too, is folding under you And it’s all over now, Baby Blue.

They choose to regulate the benefits package. And loyal readers of this blog already know what the consequences of that are. We are getting a race to the bottom on access ― with private plans in the exchanges looking increasingly like Medicaid. (See here, here and here, and Robert Pear in the New York Times this morning. By the way, this is precisely what has happened in Massachusetts). I do not remember seeing any left-of-center blog commenting on this, however.

Why do I say this is a strange choice?

During the 2008 election, every serious candidate for the Democratic presidential nomination repeated the “universal coverage” mantra repeatedly ― and on the left “universal coverage” means universal access to care. I don’t recall any candidate talking about the benefits package. Also, no candidate even hinted that access to providers might not be any better than it is under Medicaid.

Yet what we got legislatively is very strict regulation of benefits ― right down to free contraceptives, questionable mammograms and other non-cost-effective preventive procedures. At the same time health plans have been given enormous freedom to set their own premiums and choose their own networks. In fact the administration has been touting the fact that the premiums have been lower than expected, even though the reason is that the networks are narrower and skimpier than expected.