‘Free market’ rules don’t work for health care

For those Americans who have a religious faith in the free market, health care is a frustrating test of that faith. It doesn’t comform to supposed free market dictates. Competition doesn’t decrease costs.

For the better part of two decades, health care costs have been rising at more than the rate of inflation — straining the federal budget, eroding workers’ wage increases and even forcing some small businesses to drop health care coverage for their employees.

This year, businesses plan to pass more of the cost increase on to their employees, according to The Wall Street Journal:

Employers passed health-insurance costs onto employees at a sharply higher rate this year, and businesses’ premiums grew more slowly than they have in a decade, according to an annual survey of companies.

The increased cost-shifting reflected an acceleration of a trend that has been on the rise for years. (Emphasis added.) As companies struggle to cut costs amid difficult economic times, more of them are reducing benefits they offer workers or making workers pay more for them. Still, companies are paying nearly three-quarters of workers’ health-care premiums.

Employees paid an average of about $4,000 toward their family coverage this year, up 14% from last year, according to a report by the Kaiser Family Foundation and the Health Research and Educational Trust. But total insurance premiums paid by the employer and the employee rose just 3% for a family plan—the slowest rate of growth in 10 years, according to the data.

The chart below shows how rising health care costs have affected business costs and employee salaries.
Average Heath Insurance Premiums for Family Coverage 2005-20102

Meanwhile, some health insurance companies, continuing their practice of hiking premiums, are blaming the new health care reform law, according to the WSJ:

Health insurers say they plan to raise premiums for some Americans as a direct result of the health overhaul in coming weeks, complicating Democrats’ efforts to trumpet their signature achievement before the midterm elections.
Aetna Inc., some BlueCross BlueShield plans and other smaller carriers have asked for premium increases of between 1% and 9% to pay for extra benefits required under the law, according to filings with state regulators.

These and other insurers say Congress’s landmark refashioning of U.S. health coverage, which passed in March after a brutal fight, is causing them to pass on more costs to consumers than Democrats predicted.

The rate increases largely apply to policies for individuals and small businesses and don’t include people covered by a big employer or Medicare.

About 9% of Americans buy coverage through the individual market, according to the Census Bureau, and roughly one-fifth of people who get coverage through their employer work at companies with 50 or fewer employees, according to the Kaiser Family Foundation. People in both groups are likely to feel the effects of the proposed increases, even as they see new benefits under the law, such as the elimination of lifetime and certain annual coverage caps. . .
Aetna, one of the nation’s largest health insurers, said the extra benefits forced it to seek rate increases for new individual plans of 5.4% to 7.4% in California and 5.5% to 6.8% in Nevada after Sept. 23. Similar steps are planned across the country, according to Aetna.

Regence BlueCross BlueShield of Oregon said the cost of providing additional benefits under the health law will account on average for 3.4 percentage points of a 17.1% premium rise for a small-employer health plan. It asked regulators last month to approve the increase.

In Wisconsin and North Carolina, Celtic Insurance Co. says half of the 18% increase it is seeking comes from complying with health-law mandates.

The White House says insurers are using the law as an excuse to raise rates and predicts that state regulators will block some of the large increases.

“I would have real deep concerns that the kinds of rate increases that you’re quoting… are justified,” said Nancy-Ann DeParle, the White House’s top health official. She said that for insurers, raising rates was “already their modus operandi before the bill” passed. “We believe consumers will see through this,” she said.

Previously the administration had calculated that the batch of changes taking effect this fall would raise premiums no more than 1% to 2%, on average.

(Note that insurers are raising their premiums more than the amount they suggest is necessary because of the health care law.)

The greatest failure of the new health care reform law is that it fails to restrain costs, as advertised. Despite what opponents say, the law raises costs only marginally. From The Wapo:

The average annual growth in health care spending will be just two-tenths of 1 percentage point higher through 2019 with Obama’s remake, said the analysis. And that’s with more than 32 million uninsured gaining coverage because of the new law.

“The impact is moderate,” said economist Andrea Sisko of Medicare’s Office of the Actuary, the nonpartisan unit that prepared the report.

Factoring in the law, Americans will spend an average of $13,652 per person a year on health care in 2019, according to the actuary’s office. Without the law, the corresponding number would be $13,387.

A more ambitious reform would have waded into health care practices to force new incentives into the system. But that proved politically impossible. Republicans even objected to a plan to study the best procedures to see what actually works.

359 comments Add your comment

Bubba Bob

September 9th, 2010
8:27 am

Kamchak

September 9th, 2010
8:28 am

Well, I think the answer is obvious.

Tax cuts.

Tax cuts will cure the gout, eczema, seborrhea, even the heartbreak of psoriasis. It is even an effective treatment for gingivitis, influenza, the common cold, allergies, and incontinence.

Think of all the money we will save in health care costs, if we would only cut taxes.

Bubba Bob

September 9th, 2010
8:29 am

Cynthia,

What was the profit margin for health insurance companies last year?…..Around 3.3%. That is not very much. They have a right to try and make a profit. This isn’t Atlas Shrugged yet.

Beverages/Brewers had a 25.9% profit margin. Do you want the government to regulate them so we can pay less for Pepsi and beer?

Bubba Bob

September 9th, 2010
8:31 am

Cynthia,

Another thing….the Republicans did not stop the health care law. The Democrats controlled the House, the Senate,and the Presidency. They could pass whatever they wanted. Blame your own party for what you got.

Scout

September 9th, 2010
8:32 am

“Why can’t you find one single Democrat member of congress who is running for reelection by bragging on his vote for ObamaCare?” Boortz

Metro Coach

September 9th, 2010
8:35 am

Cynthia, according to you and other Progressives the free market doesn’t work at all. Your posts get ever snarkier as Election Day draws nearer, wonder why?

PearlJam

September 9th, 2010
8:36 am

“Republicans did not stop the health care law. The Democrats controlled the House, the Senate,and the Presidency”

Needs repeating – Flat out lie to say Repulicans did anything. They asked for 1 thing, scrap the whole bill and start over, Dems would not do it. They passed the bill as they wanted it.

Cynthia Is Sexy!!

September 9th, 2010
8:37 am

When illegal immigrunts and others consistently visit the ER then make no payments the hospitals pickup the tab. The hospitals then pass along the budget shortfalls and non-payments to paying customers ie Health Insurers and private PAYING citizens.

Contributing factor?

PS…Get ready for your HCare insurance costs to increase much more so than previously and dont forget to thank your local democrat for same.

Port O'John

September 9th, 2010
8:39 am

Thew free market works for health care — as long as you believe that 30 or 40 million americans without access to affordable health care is OK (or if you choose to ignore that use of emergency rooms by the un-insured is simply added to the costs that those that have insurance pay). Don’t forget the axiom about free markets from the 1800’s:

“Every man for himself and the devil take the hindmost.”

That’s the GOP/libertarian dream.

Georgia’s much vaunted tort reform has done nothing to control medical malpractice insurance rates. Lawsuits are down, but premiums keep rising anyway as health insurers enjoy record profits.

What’s good for corporations is good for America, its just not so good for ordinary americans.

PearlJam

September 9th, 2010
8:40 am

Also, I still don’t see anything that says “Free Market” is failing healthcare. Looks like all the issues with cost are impacted by Govt regulations. I don’t see issues with supply and demand of free market.

paleo-neo-Carlinist

September 9th, 2010
8:40 am

CT, the “free market” approach only works if we consider life a commodity. I don’t want to open Pandora’s here, but between Roe v.Wade, the Bush Doctrine of pre-emptive war, capital punishment, and whatnot, those keeping score know the score. don’t mean to get all “professor Jennings” (Animal House pot scene), but who “owns” life? and by “own” I mean, who benefits from life? right now the City of Atlanta, the Federal government, the State of GA, my mortgage holder and a few other creditors “own” me. I don’t exist to smell the roses or “take risks”. I exist to consume goods and services; to “stimulate” the economy. healthcare is no different. those who are selling only benefit when consumers “buy”. this is why I question the true “benefactors” of Obama’s healthcare reform (does is guarantee healthcare for all, or does it guarantee healthcare providers, drug companies and insurance compies “get paid”?). let’s face it, there is no “free market” – not on Wall Street, not in healthcare, and not in our legal system. these “markets” are controlled by those who beg, borrow or steal power. hey, did you see Castro is having a “Scrooge; we were wrong” deathbed moment? interesting.

teamguy

September 9th, 2010
8:42 am

Are we talking about health care, or health care insurance? Not the same thing at all. Way too many people run to the doctor with the sniffles, when a good stiff shot of Jack Daniels would do the trick! Unless, of course, you live in Snellville.

Bubba Bob

September 9th, 2010
8:42 am

Port O’John,

I would like to help all Americans. I would love to see good affordable health care. Two issues with this bill.

1. The government shouldn’t be able to force me to buy health care insurance.
2. We don’t have the money. We are broke.
3. The bill is a stupid mess that no one even read and surely don’t understand.

The Dems passed it, let them reap the rewards.

PearlJam

September 9th, 2010
8:42 am

paleo-neo-Carlinist – Yes I saw where Castro stated the Cuban economy “does not work”.

Josh

September 9th, 2010
8:43 am

“ObamaCare does not work for healthcare” and the Democrats know it and are running scared and are not even mentioning it in their campaign to get reelected. Democrats are separating themselves from Obama in hoping to have a chance of getting reelected. But, we know dems are done in 2010 and Obama is gone in 2012.

Belinda

September 9th, 2010
8:44 am

Good article, Cynthia. The insurance companies, pharmaceutical companies, medical supply and equipment companies, and doctors themselves are making a lot of money. Too much money. The average American cannot continue to support these entities at the level that we have been . The whole system is going to collapse just like the housing market.

Bubba Bob

September 9th, 2010
8:45 am

Belinda,

3.3% profit margin for health insurers is too much? What about the 25.9% for Beverage makers? Do you want the feds to take them down a notch?

Cynthia Is Sexy!!

September 9th, 2010
8:46 am

Perhaps after The Ayetollah Obama is tossed from office he could go live in Cuba and assist them using his wonderful ideas. The “World” seems to love Obama so let them have him.

Bob

September 9th, 2010
8:46 am

Cynthia is right, free market sucks. Imagine how great this country would be if we gave Obama and his buddies like Bill Ayers the opportunity to run the country the way they see fit. Who needs that restrictive constitution that tell gov what it can’t do. By the way, the muslims are threatening us now if the mosque gets moved, so much for the religion of peace “.The imam behind a proposed Islamic community center and mosque near ground zero cautioned Wednesday that moving the facility could cause a violent backlash from Muslim extremists and endanger national security”. But lets not let bubbu burn the Koran, it might make them mad.

Jimmy62

September 9th, 2010
8:46 am

Nice theory, but what we had is nothing close to a free market, and what we will have is also nothing close to a free market. The tax benefits that corporations get for providing health care is one of the many ways in which the government has avoided allowing the free market to improve things. Why should health care purchased through an employer be taxed differently than health care purchased individually?

Please explain how that’s in any way a free market, I would love to see the magical fantasy logic you use to pull that off.

pat

September 9th, 2010
8:47 am

Duh….Cost is the only problem. If you can afford health care you don’t need insurance.
Everybody but you liberals knew this idiotic health care “reform” was going to drive up costs. They were so focused on 31 million that they screwed the other 250 million in the process.
It would have cost less to buy 31 million people good insurance, than this idiotic reform.
Is there anything a democrat cannot screw up? Everything this administration has done has failed. Their only answer? Throw more money at it.

Keynesian economics has never worked in practice. Like communism, it sounded good on paper, but it’s real world application is an unmittigated disaster.

The republicans may have screwed up a lot in the previous 8 years, but in the last 2 years, they have been right about everything.

Cynthia Is Sexy!!

September 9th, 2010
8:47 am

“are making a lot of money. Too much money.”

LOL…its called Excess Profit…LOL. See Hillary “The HildaBeast” Clinton.

PearlJam

September 9th, 2010
8:48 am

It should be:
Insurance companies only offer coverage for major health issues.
Everything else paid cash on the spot.

Seems like anytime you take purshasing power from consumer, prices get all wacked out, education is the same issue, stop student loans and the cost will go down.

Tychus Findlay

September 9th, 2010
8:49 am

CT, you fail to recognize the fact that the average American goes to the doctor or requires a pill for every sneeze, sniffle, or twinge of pain that they experience. Couple that with the litigation-happy society in which we live (read higher insurance for doctors) and there’s your sharp upturn in health care costs.

Jimmy62

September 9th, 2010
8:49 am

Belinda: If you think those people charge too much, don’t use their services. It’s very simple. No one is forcing you to get health care and if you don’t like what they charge, don’t use their services. Pay your own way through medical school and take care of yourself. And then see how much you want to charge people to pay for all the debt you collected in school, and the years of sacrificing your social life to study.

The other option is to force doctors to charge less… Also known as slavery.

Bob

September 9th, 2010
8:49 am

I know, lets tax medical device makers on revenue instead of profit, screw them, they can go out of business or move out of the country. We don’t need the jobs because Obo is asking for another stimulus bill. In fact, lets tell doctors that we will cap them at 100grand a year, we will show those greedy bums who is in charge.

John Trotter

September 9th, 2010
8:50 am

Pleez pass duh cawn nerblits am toofpik pieces.

paleo-neo-Carlinist

September 9th, 2010
8:51 am

Belinda, do you actually think Big Med, Big Pharm, and Big Insurance are not going to make “a lot of money” under the new model(healthcare lobbyists practically wrote the legislation)? you know how I don’t “support these entities” – I don’t have health insurance (sonce 2008) and I have not been to the doctor since 2006. you know how I don’t support Lady Gaga or the Black Eyed Peas? I don’t buy their records or attend their concerts. I’m not even saying I am opposed to some sort of national healthcare program, but the much talked about Obamacare program is not even close. as with the war in Iraq, it is a federally mandated jobs program for special interests. I suspect it will be just as costly and just as “successful”

WAR

September 9th, 2010
8:57 am

can someone please explain what is wrong with government assisted healthcare? seriously. i’ve looked at both sides of the issue–those for the required insurance and those against–and i’ve yet to really see a problem with either… so, i don’ t understand the hullabaloo why government run insurance is bad.

please advise.

Jon

September 9th, 2010
9:00 am

Cynthia – you actually think we have a FREE MARKET health care system??? BAHAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!!!!!

51% of health care spending is via govt. Not to mention all the regulations imposed on product offerings and provisions for competition in every area of the country by state and federal laws.

Seriously. Read an economics book. If you think our system is free market, you have absolutely zero understanding of the concept.

Kamchak

September 9th, 2010
9:01 am

can someone please explain what is wrong with government assisted healthcare?

Because it is Marxist, fascist, communistic, dictatorial SOCIALISM!

And we must be VERY AFRAID!

mystified

September 9th, 2010
9:02 am

I don’t disagree. The problem is, I don’t trust large corporations to do the right thing; and the government doesn’t have the ability to do anything on that scale well. I wonder if we got rid of insurance all together and went to a pure cash for services system if we would make out better in the long run.

Josh

September 9th, 2010
9:02 am

The AP just released a new article moments ago that states Obamacare increases cost of having healthcare among americans vs private healthcare. By the way, does anyone realize that every american who works will be taxed on $7000 a year to support obamacare and that every business will have to pay $7000 per employee to support Obamacare. This means small businesses are gone. This means jobs are gone. This means more people not being free and being a slave to government. Thought you should know this.

Bubba Bob

September 9th, 2010
9:05 am

Mystified,

Good question.

Kamchak,

Irony aside, I do worry when the government wants to force me to buy health insurance.

Josh

September 9th, 2010
9:05 am

and the $7000 per employee businesses have to pay is a yearly thing. ITS NOT A ONE TIME THING.

Wahoo

September 9th, 2010
9:06 am

“The greatest failure of the new health care reform law is that it fails to restrain costs, as advertised.”

It’s pretty sad when you have ardent Obama supporters such as Cynthia acknowledging the new law won’t accomplish one of its primary purposes.

The title of this post is laughable as well. Cynthia claims the “free market” doesn’t work in health care, but the entire second half of her post is about how the market is reacting to the government’s new health care reform. The high level of government involvement both before and after the passage of Obamacare suggests that health insurance is anything other than a “free market”. Quite the opposite, it makes me wonder if Cynthia even has the slightest idea what the free market looks like.

ctucker

September 9th, 2010
9:08 am

Kamchak@9:01, Do you have that same problem with Medicare? It’s the closest thing to socialized medicine that we have in this country.

mystified

September 9th, 2010
9:09 am

WAr, The problem with government getting involved with health care is you have an entity that does not have to show a profit and can run at a loss competing with for profit companies. It creates unfair competition that would most likely lead to running private insurance companies out of business. Even though private insurance has problems, most “who are insured” are happy with their service. The government has no track record for efficiency. I doubt the quality of care from a government health care would match what is available now.

Somehow we should be able to insure those who need it without threatening private insurance.

Bubba Bob

September 9th, 2010
9:09 am

ctucker,

Kamchak was being sarcastic.

ctucker

September 9th, 2010
9:10 am

pat@8:47, Did you read the post? The new law will drive up health care costs less than one percentage point.

barking frog

September 9th, 2010
9:10 am

Private insurance companies are supposed to maximize profits by
raising premiums and denying claims. That’s why we needed healthcare
reform.

WAR

September 9th, 2010
9:10 am

@ kam
thanks… that cleared it right up! you forgot RACIST… that word definitely has to be included. i don’t know why other than it ends with an -IST.

Bubba Bob

September 9th, 2010
9:12 am

ctucker,

You are asking Pat does she understand. Do you understand what a 3.3% profit margin is?

ctucker

September 9th, 2010
9:12 am

yes, barking frog@9:10, you’re right.

ctucker

September 9th, 2010
9:12 am

Thanks, Bubba Bob@9:09. I must have misplaced my sense of humor.

Bubba Bob

September 9th, 2010
9:13 am

Barking,

So the government will never deny claims to save money the won’t have? Keep dreaming.

ctucker

September 9th, 2010
9:13 am

Kamchak@9:01, Sorry I misinterpreted you.

Mike K

September 9th, 2010
9:13 am

“The average annual growth in health care spending will be just two-tenths of 1 percentage point higher through 2019 with Obama’s remake, said the analysis. And that’s with more than 32 million uninsured gaining coverage because of the new law.”

That’s government spending – not total spending.

Also, health care delivery in America looks nothing like a free market. Certain methods of insurance purchase, but not others, are subsidized by the government. Approximately half of all medical spending is paid for by the government’s mandatory insurance program (Medicare), and private insurance programs are heavily regulated by the individual states (and now the federal government) in terms of what they have to cover, when they are allowed to drop adult children, and how much they can charge high risk vs. low risk individuals.

Health care has not been a free market here for a long, long time. It’s remarkably dishonest to suggest otherwise.

Oh, and Medicare isn’t socialized medicine. It’s socialized insurance, which may actually be worse.

Bubba Bob

September 9th, 2010
9:13 am

ctucker,

No worries. I didn’t know you had a sense of humor. (that’s my mean, evil-spirited, conservative attack for the day) :)

Jon

September 9th, 2010
9:13 am

Mystified – you just hit it. That’s how our system used to be before the mid 1940s. And costs didn’t rise like you’re seeing now. People paid for their services – even major surgeries didn’t cost more than a few months salary (hardly bankruptcy) – and used insurance for CATASTROPHIC instances that protected them from financial calamity …. you know…how insurance is supposed to work?

It wasn’t until govt got involved and they set up the tax system so that employers provided health coverage that we grew these generations of people that believe that someone else should be responsible for our health care – hiding the costs and consequences of our HC choices.

Now Obama has simply expanded this mentality and the screwed up system that results from it.