Anthem is robo-calling enrollees to kvetch about health plan price hikes of up to 39%. Then they’re asking these customers whether they plan to dis-enroll — that is, to quit their health plan enrollment. The move would impact as many as 700,000 health citizens in California.

Let me take you back to your freshman economics class (and if you didn’t take that class, let me enlighten you on the 101 version) of “the market.”

A perfect market, Samuelson told us in his standard Econ 101 text, was dependent on:

  • Lots of buyers and lots of sellers
  • No-cost entry and no exit barriers
  • Perfect information, where prices and quality of products are known to all buyers and all sellers
  • Homogeneous products, that is that the product for sales from one seller is near-identical to that from another seller
  • No costs incurred when making a purchase/sale.

And of course, sellers seek to maximize profits in perfect markets.

Health Populi’s Hot Points: If there’s a picture to include next to the Webster’s Dictionary definition of “imperfect market,” it’s of an uninsured American health citizen seeking health insurance on the individual market. This is, more often than not, a “no-go” proposition.

You can tick off most of the prerequisites for a perfect market – lots of sellers, free entry/exit, perfect and free-flowing information, etc. – when it comes to the sale and purchase of health insurance in the U.S. We’ve got monopoly and oligopoly supply sides in regional markets. There’s not even close to free-flowing, easy-to-understand information on policies or quality or clear pricing relative to the value-proposition of the individual health policy.

Of course, sellers – health plans – do indeed seek to maximize profits. That’s their promise to shareholders.

There is indeed something perfect about this scenario: it’s the perfect argument for health reform, and for a public option, in particular. If traditional health plans were keen to construct a simple, low-cost health insurance plan by now, they would have done so by now. The scene is ripe for disruptive innovation.

5 Comments on Anthem price hikes: poster child for an imperfect health market

Michael Wong said : Guest Report 10 years ago

In short, what you are saying -- and I agree with you (unfortunately) -- is that insurers are acting like the "good" economic actors that they have charged to do by their shareholders - make profits. It therefore should come as no surprise when claims are denied or delayed, when prior authorizations are put into place to put obstacles in the way of a physician prescribing what they think is best for their patient, and so forth (for more on those hurt by prior authorizations, please see http://wp.me/p1fYJ7-2M). Having said that, this unfortunate "reality" needs to change.

The Myth of Consumer-Directed Care | Care And Cost said : Guest Report 10 years ago

[...] don’t apply for a whole range of reasons I and many other economists have discussed. Here’s a post I wrote in February on Anthem’s price hikes that highlights some aspects of market failure in health [...]

Tom W said : Guest Report 10 years ago

Another key point on your diagram is the fact that in a perfect market, demand goes down as price goes up. Consumer goods, for example, approximate this. If prices are too high, consumers will simply opt out. This will force suppliers to lower prices and regain their market share. When prices drop, consumers start buying again. Demand for health care is independent of price. You need exactly as much health care as your situation dictates, and you're going to pay whatever it takes to get it. You're not going to buy less when prices go up (unless you simply run out of money), and you're not going to buy more when prices go down (2 for 1 kidney transplants, anyone?). Where is the incentive for suppliers to lower their prices in response to market forces?

The Myth of Consumer-Directed Health Care | Health Populi said : Guest Report 10 years ago

[...] apply for a whole range of reasons I and many other economists have discussed. Here’s a post I wrote in February on Anthem’s price hikes that highlights some aspects of market failure in health [...]

Ed Harris said : Guest Report 11 years ago

My Anthem rate went up 30% last month. It's an HSA so I guess I will be shopping...like a lot of people. And we are healthy, too!

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