Peter Ubel reports on what might be ♡bamaCare!!!’s fundamental failure — relying on mock “competition” on the exchanges to bring down prices:
The exchanges are subsidized markets. But subsidies inevitably mess up with normal market functioning. After all, insurers usually compete with each other, in part, based on price. And the cost of insurance varies dramatically, depending on who’s applying for insurance. A single man will typically pay less for his insurance than, say, a family of four. The price of insurance also changes depending on where someone lives, an expensive place like New York City or a cheap one like Topeka (please don’t send me nasty-grams, all you Topekans. I am a Midwesterner just like you!)
Because of this normal market variation in the price of health insurance, the ACA stipulated that the size of the subsidy would vary, in part, based on the cost of the plans in a person’s local market. Specifically, people purchasing insurance on the exchanges are offered plans ranging from bronze ones – with low monthly premium and high out-of-pocket costs – to platinum ones – with high premiums and low out-of-pocket costs. Subsidies are tied to the cost of the second cheapest silver plan.
Got that? That means that if there are five silver plans available in your local insurance market, the price of the second cheapest one sets a kind of limit to your subsidy. If you want to purchase a more expensive plan than the second cheapest one, you will pay the difference in the price of the monthly premium.
This approach makes some sense. If the government had chosen to subsidize people to purchase the most expensive plan in the local market, insurers would have had no incentive to lower their prices.
But this approach has a backwards consequence: The more competitive your local insurance market is – the more choices you have available – the more money you are likely to pay for your insurance.
Read the whole thing.
I’d just add that only a Progressive would create a market of captive customers, mandated to choose from a limited selection of government-defined products, sold by government-approved corporations, with prices effectively hidden by sliding-scale subsidies patrolled by the IRS, and call it “competition.”