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Free Markets, Competition and Health Insurance

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

At a recent Congressional hearing, Dr. Mandy Cohen of the Centers for Medicare & Medicaid Services explained that almost 700,000 Americans have lost their health coverage because the insurance co-ops formed under ObamaCare to foster competition couldn’t compete with “big, experienced players” in the insurance marketplace.


Dr. Cohen was talking about the five major insurance companies that cover the vast majority of Americans: Aetna, Anthem, Cigna, UnitedHealthcare, and Humana. If the ObamaCare co-ops continue to fold (a virtual certainty) and the Aetna / Humana and Anthem / Cigna mergers take place (both probabilities), almost all Americans – and indeed America’s entire healthcare system – will rely on just three insurance companies.

“My guiding principle is, and always has been that consumers do better when there is choice and competition,” said President Barack Obama in 2009. “That’s how the market works. In Alabama, almost 90 percent of the market is controlled by just one company. And without competition, the price of insurance goes up and quality goes down.”

His analysis was quite right, of course. Unfortunately, his signature policy has exacerbated the very problem he identified. Does anyone believe the co-op collapse and big insurance mergers will save consumers money or expand their health care options? No chance.

It’s important to note that market-driven mergers and acquisitions are generally good for investors and consumers, relative to the alternatives. But the present insurance industry consolidation is being driven by government policy, not free markets.


Just as big a concern as the lack of competition, insurance industry consolidation will lead America down a path eerily similar to the financial collapse of 2007 with three insurance companies replacing “too big to fail” financial institutions and costly insurance payouts replacing subprime mortgages.

By 2007 big lenders had become vehicles for implementing a government policy promoting universal homeownership. Likewise, insurance companies are now the vehicles for implementing government policy that promotes universal health coverage. By 2007 millions of people had purchased homes they would not have otherwise been able to purchase. Likewise, insurance companies today cover 18 million people who might otherwise not have had insurance or even be insurable.

Making high quality health coverage affordable for all is a laudable policy objective. Reasonable people can disagree as to whether the coverage ObamaCare makes available is indeed high quality or affordable. Regardless, what happens if the ObamaCare model is unsustainable? Last month Anthem stated that its ObamaCare business is underperforming and that pressure for keeping premiums low is unrealistic. Meanwhile, the insurance industry lobby in Washington, DC is quietly advocating for prescription drug price controls to cushion their bottom line at the expense of patient health and well-being, while simultaneously seeking 20% - 40% premium rate increases in 2016.


As ObamaCare relies on a dwindling number of insurance companies to administer the U.S. healthcare system, would the federal government hesitate to prop them up if – perhaps when – things go pear-shaped? The federal government seems perfectly willing to pour money into its failed ObamaCare experiment. The co-op collapse alone will likely cost the American taxpayer over $2 trillion.

With health insurance co-ops dropping like flies and huge mergers in the offing, ObamaCare has created an environment in which the U.S. health system is beholden to a small number of “too-big-to-fail” insurance companies creating risks reminiscent of financial meltdown almost a decade ago.

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