What's a Monopoly?
Consumer advocates and physicians have been fighting the prospect of UnitedHealth Group gobbling up Sierra Health Services in Nevada. They had about as much chance of stopping that merger as the Pittsburgh Pirates have of winning the 2008 World Series, and indeed, the UnitedHealth Group-Sierra deal became final earlier this year. Under the Bush administration, the Justice Department hasn't seen many mergers of any kind that it doesn't like—the much-delayed approval of the two major satellite radio companies notwithstanding.
The American Medical Association has been decrying for two or three years now what it calls "health insurance monopolies" in many markets. It argues that this merger "is one more example of a health insurer mega-merger that will benefit no one other than health insurer executives and stockholders." Whether that merger or any of several others in recent years that have reduced the number of regional insurers—and thus reduced competition—constitutes a monopoly is arguable. But the trend toward bigger health plans and more negotiating power for huge insurers is undeniable.
Doctors are worried that large health plans, with little or no competition in many markets, will dictate rates of reimbursement by fiat. The one- and two-physician practices, whose membership makes up a large portion of the AMA, are especially worried. They fear physicians, and hospitals, will have to accept or go out of business. And they fear, rightly, that the era of cross-subsidization under which commercial health plans supplement the low rates hospitals and doctors get from government payers will end. Of course, lobbying groups like the AMA are often full of hyperbole, but we have an admittedly flawed model for what a commercial insurance monopoly, should it come to pass, will look like. In fact, that monopoly is already operating in our midst—Medicare.
Medicare decides what it will pay for procedures and services. Hospitals and doctors accept, or they lose about 50 percent of their business, by most accounts. The analogy is not perfect, however. Medicare serves the U.S. government and its constituents, not mega-rich health insurance executives (remember disgraced billionaire William McGuire?) and their shareholders.
Medicare is also beholden to Congress, which is beholden to interest groups who lobby them and can tell Medicare to stick its attempts to cut costs and improve quality where the sun doesn't shine. Congress can't even keep from overruling itself every year of the past five on doctor reimbursement cuts that it mandated by law with the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Government monopolies can be influenced and blunted by such tactics.
On the contrary, for-profit insurers answer to their shareholders first and everyone else last. So what does further consolidation mean for providers? We'll see. But the odds of the Pirates winning the Series are 100-1, if that tells you anything.