Anticompetitive health insurance practices

One of the most popular parts of the new federal health care law is the establishment of the state insurance exchanges—large pools of customers for which insurance companies would compete to sign up for health insurance. Leveraging large numbers of customers to drive down insurance premiums is a concept loved by all—Democrats, Republicans, Libertarians, Tea Partiers, big business and small business.

But the idea relies on the premise that there is real competition in the health insurance market that actually works to drive down costs. Apparently that isn’t the case.

Many of us have been aware that the dominant health insurance company in a market demands that it be treated as a “most favored nation” by providers. In other words, these dominant insurance companies would negotiate fee rates with hospitals and other providers and require those providers to charge higher fees to the patients of other insurance companies. They leverage their volume of insureds to get a better deal.

In this way the dominant insurance company can always have more competitive premiums. If the providers don’t agree to play, the dominant insurance company can kick the providers out of their network thus reducing the provider’s revenue due to fewer patients.

This tactic makes it more difficult for other insurance companies to compete and insures (pardon the pun) that the dominant insurance company stays dominant.

As bad as this “most favored nation” tactic is for consumers because it reduces competition, it apparently is even worse than that.

Blue Cross Blue Shield of Michigan is being taken to court by the U.S. Justice Department and is accused of anticompetitive behavior that encourages higher provider rates and thus higher premiums.

Specifically, Michigan’s Blue Cross is being charged with “paying hospitals higher prices for medical care in exchange for a promise they would charge competing insurers as much as 40% more than they charge Blue Cross.”

The reality is that without real competition in the health insurance market because the “most favored nation” tactic is allowed, there is no incentive for insurance companies to try to get the lowest price for health care services. In fact, the companies make more money when the service costs rise because their built-in profit margins are a percentage of their health service cost payouts.

Is Michigan the only state where this is going on and forcing the individual and small group markets to pay inflated premiums due to a health insurance company greed?  I doubt it.