Limiting health insurance plan choice is harmful to consumers

A significant component of the Affordable Care Act is the forced standardization of health care coverage through prescribed components that must be carried by insurance plans. Ultimately, this approach has been tremendously disruptive and has moved millions of people off of the plans that in the previous market paradigm they were happy to buy. I refuse to call it a free market since it really has not been that for decades. This disruption is the impetus behind much of the lampooning of Obama’s language, which later proved to be an astoundingly incorrect bit of marketing and hype, that if you had a plan that you liked you could keep it.

Standardization of plans ostensibly removes buyer searching costs for complicated products. Such as approach would only make economic sense if the searching costs were higher than the benefits obtained from the selected product. The challenge is that this sets a remarkably paternalistic precedent – if we dupes in America can’t be trusted to buy health coverage that suits our needs, perhaps we can’t be trusted to buy financial instruments or real estate either. It also has the perverse effect of cutting off product innovation that caters to individuals and unique segments of the healthcare market. Something to consider and question: can government possibly keep up with the changing demands of consumers as well as the unpredictable emergent order that drives market-betterment ideas and innovations? Even if government might be approximately right on the first iteration of defining product standards, it would be impossible for them to keep up with the pace that a free market comprised of consenting adults engaging in commerce could drive. Furthermore, a significant philosophical challenge is that such an approach mandated by government significantly violates an essential freedom of consumers to choose for themselves what is best for them. Finally and perhaps most perniciously, such an approach allows government to enact their own views of desirable social policy through diktat. The Supreme Court case of Burwell vs. Hobby Lobby  is an example in which a private employer was forced to provide contraceptives against their own religious beliefs. Whether one believes Hobby Lobby is outside of the societal norms in their stance on contraceptives is quite beside the point. The point is really whether we believe government should be powerful enough to be able to force anyone in society to choose which product to purchase and what it should contain. This is the first-order principle freedom-loving citizens should be concerned with.

In the book The Future of Healthcare Reform in the United States, Richard Epstein, of the NYU School of Law, pens the following compelling narrative on the challenges with the elitist assumptions of government needing to protect consumers through standardized plans:

Any decision such as that made in healthcare markets – to require given firms to offer a particular type of contract with predetermined coverage – does not facilitate competition but thwarts it by restricting the dimensions over which innovative firms can compete. To be sure, it is unlikely that either midsize firms or ordinary consumers can canvass the entire market. But they can make a series of initial cuts to focus on the market segment they care about most. At this point, one of the key drivers of good competition is the ability to offer a particular configuration of goods and services that make sense to some segment of the overall market. The standardization of service packages thus prevents innovation along certain key dimensions, which hardly improves the overall competitive market. Put otherwise, product differentiation is the great and beneficent spoiler because it allows rapid and discontinuous changes in the market such as the rise and fall of BlackBerry and the now possible decline of Apple in the face of potential disruptive technological developments from a host of competitors. In my view, these large gains dominate any negative effects. Indeed the constant use of product differentiation, both large and small, in market after market, suggests healthcare regulators engage in a dangerous gambit by limiting product choice to a few set choices in order to reduce the buyer’s costs of search. People can truncate searches using sensible strategies. They do not have similar ways to expand market options.

Imagine if government decided that our smartphone choices were overwhelming to consumers and determined that we should all have certain features based upon some government committee’s determination of a rightful specific set of requirements. I suspect the product so described by the committee in the duly published 500 page document would prescribe usage of something resembling the BlackBerry more so than the iPhone. And despite Hillary Clinton’s fondness for this device, we obviously would be immediately worse off as consumers. Further imagine that the government decided that we could no longer buy the phones at Apple stores or Best Buy, but purchasing of these devices had to occur at government licensed locations. Behold the entirety of the healthcare market: a market in which there is an inherent paternalistic assumption that consumers are too ignorant and overwhelmed to make their own choices. The government committee decisions on what we can buy and where we can receive our products described in the smartphone analogy is precisely the kind of marketplace we have allowed our government to create in healthcare. Perhaps it is time to step back and ask ourselves why and whether we are getting good outcomes out of this approach.

 

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One thought on “Limiting health insurance plan choice is harmful to consumers

  1. Pingback: The left’s massive remake of healthcare strikes and fails again – The Gymnasium

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