One of the more ironic features of the Republican tantrum about the Affordable Care Act is their contention that the law is an assault on free market capitalism. The notion of the individual mandate was adopted by the Republicans in days of yore as a free market option to single payer health care services:
“Conservatives were drawn to individual mandates for two related reasons. First, they would strengthen rather than undermine the private insurance marketplace. Second, they would provide a constructive laissez-faire alternative to the liberal single-payer approach to achieving the goal of national health insurance.” [TDB]
Let’s look at the first part of that statement. Those health care insurance plan “one stop shopping” exchanges provide a platform for insurance corporations to offer their policies to potential customers. This introduces competition into the market, and we do like competition don’t we? The St. Louis Federal Reserve explains, expanding on the common “baker’s analogy:”
“In order to earn your money I must provide a high quality good or service at a reasonable price. You will notice that this assumes I have competitors. If I were the only baker in 100 miles, I might be able to charge a high price, sell inferior products, or treat my customers rudely – but even in that case, another self-interested person might see an opportunity to earn a profit and open a competing bakery in town. Thus, competition is the regulator, a check on self-interest because it restrains my ability to take advantage of my customers.”
Notice that we are speaking of strengthening the entire health care insurance market — NOT speaking of improving the revenues of a few large insurers. In an exchange more, perhaps lesser well known, insurance companies could put their policies before customers — and if we believe in the efficacy of competition as a check on self-interested greed and abuse of customers this would be a good thing.
Competition also affects pricing. The usual expression of this is summarized in this concise advice for small business owners:
“Your price relationship to your competitor falls into one of four categories says Laurus Nobilis at Biz Development. These are pure parity, dynamic parity, premium pricing strategy or discount pricing strategy. In pure parity, your price always equals that of your competitor: they set the price and you match it. Dynamic parity happens when you pick a competitor and keep the gap between their price and yours the same. Premium pricing is higher than the competitors, but you gain a position of higher perceived benefits. In discount pricing, you always keep the price cheaper than that of competitors. Discount pricing is most commonly used by generic or store brands.”
The same general advice applies to large and small insurers. They might adopt “pure parity” strategies, “dynamic pricing,” “premium pricing,” or “discount pricing.” It’s not difficult to notice that all the strategies are related to marketing.
There must be some differentiation between the policies on offer to customers which motivates their choices. If low cost is my prime concern, then I may look for a company with a discount strategy. If high quality is my prime motivation then I may select a product priced higher — under the “you get what you pay for” rationale.
In order for me to perceive these differences someone is going to have to make me aware of them — and that’s called advertising. If the rules of classic capitalism hold true, then an increase in competition between and among insurers should, in turn, create more demand for advertising and marketing services — especially from the smaller, less well known insurance companies.
One of the rules of the insurance business is that the larger the pool, the lower the risk (to the insurance business), and the lower the risk the lower the premiums charged to customers for their policies. The individual mandate creates a larger pool. Those individuals who do not have health care plans subsidized by their employers purchase insurance via an exchange. We can’t bend the cost of health insurance toward more affordable rates unless we create a larger pool of customers. If we mean to make health care insurance affordable, in a free market system, then it behooves the government to facilitate the flow of new customers to add to the total pool.
If the provisions of the Affordable Care Act were to be repealed, or “delayed and dismantled” as the Republicans advocate — without offering a substitute proposition — then we might reasonably expect a reversion to the status quo ante-bellum in which large insurers could (1) monopolize the health insurance markets regionally, (2) effectively prevent smaller companies from introducing more competition, and (3) engage in practices which would make the greedy baker in the classic free market analogy blush.
And, for this the GOP would shut down the federal government?