Recently the Division of Insurance released the names of insurance plans submitted by carriers for approval when “Connect for Colorado” launches this Fall. All of this stimulates several thoughts.
A first principle of economics is that suppliers and buyers interact freely in the market. Out of that chaos comes a price. In this instance, a regulatory body is specifying the product, approving it for sale, and quasi-regulating the price. It is attempting to influence demand and supply by a variety of tax subsidies and penalties. And, it is trying to maintain control by forcing both buyer and seller to use the Exchange. By my count, 14 insurance companies, many of them Board members of the Exchange, and heavily skewed toward HMO products are the main players.
Early evaluations of Exchange offerings suggest most insurance companies are entering this market with great reservation. Not all states have viable exchanges and there are many unknowns. It has all the appearances of a government-wired proposal process.
A characteristic of regulated markets is a shortage of supply. Pictures of communist countries always show bare shelves where canned goods and bread should sit. And, there is often a thriving black market in the shadows. Health care today is dominated by oligarchs who do business from their castles and cathedrals. And, the foundations and NGOs who act as enablers and facilitators inhabit pretty nice digs too. This is not Steve Jobs in a garage or Bill Gates operating out of a skunkworks.
If the insurance industry wants to kill off the emergence of exchanges there are two ways they will do it. One is to sabotage their funding source. They will also hold off supplying viable products and only sell certain products through the Exchange. That makes the Exchange look more like a factory outlet store that offers slightly blemished goods.
Every supplier has challenges when it comes to distribution channels. A decade ago, Apple was having trouble brining its products to market through big box retailers. Apple made two strategic moves. First it pioneered the “Apple-direct” stores. Second, it designed its products with specific price points to appeal to consumers in a retail setting. But, this came about not because of government inspiration(it was too busy initiating antitrust litigation against IBM and MicroSoft) but because deregulation and competition between cellphone carriers, retailers and over the internet converged to create a perfect storm beneficial to the market. Electronic devices come to us by way of a virtuous cycle of continually lower prices and better products and services.
The whole notion of the Exchange may eventually be come to be regarded as a fool’s errand. We need a healthcare bazaar where there is intense competition, lower prices, innovative offerings and shakeout of marginal players. When ComputerLand, BusinessLand, CompUSA, Ultimate Electronics and a substantial number of Best Buy stores were forced to exit the market because of market competition, we know the disciplining forces of the competitive market were working. And, we will know it is working in health care when high cost hospitals start going broke, not getting propped up by government largesse. And, we will know it is working when the large seven insurance companies who dominate the Colorado insurance market suffer the same demise that IBM and the computer mainframe companies. None of them manufacture hardware; they were universally humbled by Bill Gates and Steve Jobs. Joseph Schumpeter called it creative destruction.
I believe that the reason Exchanges are the center-piece of Obamacare stems from an appalling misunderstanding of basic economic principles by the people involved. Legislators bristle at the suggestion that they need formal training in economics. They believe that when markets fail, they have electorally been given a mandate to deal with health care access. When hyper-inflation and unintended consequences ensue they merely redouble their efforts and dig a deeper hole. If the dismal science guys couldn’t pull it off then let’s turn it over to the motivational speakers.
It took the Soviet Union a long time to collapse, and it was not because of new-found enlightenment of its leadership. Their system became unsustainable and ceased to function. From the mid-1970s up until now we have been witnessing the disintegration of organizational hierarchy and a transition to a post-industrial paradigm. Many of us do not understand fully the implications. The true effects are being disguised by ill-advised policy actions. There is nothing worse for an expert fly fisherman who is plying the water to catch fish than to have a rank-amateur outfitted in Orvis gear come along and muddy the water.
Whether the Exchange succeeds or fails is too early to determine. I am unwilling to take bets either way. Every year we watch professional teams go to training camp and try to guess whether they will be champions. It rarely works out. And, way too many parents watch their son or daughter play high school sports thinking they will win a scholarship. It rarely works out.