Why health insurers need MORE market power

The Economist lays out the challenges of expecting private health insurers to boost access and quality. It raises the oft-forgotten issue of the lack of market power by health insurers, vs. hospitals and medical groups in the regions insurers cover. Which of course raises questions about removing insurers' anti-trust exemptions.The mag quotes George Halvorson, the chief executive of Kaiser Permanente, who points ...

to a chart showing how difficult it is for private insurers to tackle costs in the country’s “fee for service” health system, which rewards transactions rather than health outcomes. As insurers have squeezed hospitals, the average duration of hospital stays has indeed fallen—but that has been more than offset by a rise in prices (see chart 2). You might ask why competition among hospitals has not held prices down. The explanation is that there is not much of it. Hospitals have local oligopolies or even monopolies, especially after a recent wave of consolidation, so price competition is rare. The opacity of pricing makes it hard for insurers (and harder still for patients) to shop around. ...

According to Alain Enthoven of Stanford University, an economist whose theory of managed competition inspired Dutch reformers: “If they are to deliver innovation, insurers need more market power...or they must integrate like Kaiser Permanente.”

Krugman: Japan, here we come ...

Paul Krugman says alternative core inflation measures, like "trimmed-mean and median inflation," are getting increasing attention. Core measures like these measure inflation "inertia," and provide a view into inflation expectations over the longer term, he says.

"What these measures show is an ongoing process of disinflation that could, in not too long, turn into outright deflation," Krugman writes.

See the chart ...