Proponents of a public health insurance plan, including President Obama, claim it is needed to stimulate competition. There are five good reasons to question this claim. First, the evidence shows that at the national level, the health insurance market generally is highly competitive for a large fraction of privately insured individuals. Second, both at the state and local level, markets that appear to lack competition are dominated by non-profit firms whose economic incentives are no different than a public plan. Moreover, insurance plan concentration to some extent appears to have been a helpful counterweight to the growing market power of providers in recent years. Third, in areas where lack of competition is an issue, there are tools to restore competition that would be vastly superior to reliance on a public plan. Finally, real world experience demonstrates that head-to-head competition among private insurers can produce sizable premium savings even without a public plan.
Here’s the evidence to support those conclusions.
