United Healthcare's Acquisition of Sierra Health

United Healthcare's Acquisition of Sierra Health
June 1, 2007

Greg Scandlen

Greg Scandlen is a senior fellow of The Heartland Institute and founder and director of... (read full bio)

Consumers for Health Care Choices raised some hackles with its letter in late March to the Justice Department opposing United Healthcare's acquisition of Sierra Health in Nevada. The complaints against us fell into three categories.

Libertarian purists think the federal government has no business interfering in the market and oppose antitrust laws generally. I agree with them in principle. Monopoly would not exist in a free market because new competitors would always come along to offer better and more efficient goods and services.

But the reality is that we don't have a free market in health insurance, and haven't had one for at least 70 years. There are massive barriers to entry erected by the government on behalf of a select group of rent-seeking companies. These are primarily state laws, beginning with the laws in the 1930s that enabled the creation of Blue Cross and Blue Shield plans.

More recently, the "small group reform" laws enacted by the states in the 1990s were promulgated by the National Association of Insurance Commissioners (NAIC) specifically and explicitly to "stabilize" a market that was suffering from too much competition (in its view).



Protecting Inefficiency

Furthermore, like it or not, antitrust law does exist, and it has been selectively used to penalize some elements of the market but not others. Physicians are terrified to discuss fees or network contracts with each other out of fear of being accused of price fixing or boycotting.

They are woefully disadvantaged in dealing with a health plan that controls 85 percent of the market--to the point that some physicians have explored forming a union to stand up to powerful health plans.

It is even worse on the hospital side, where monopoly hospitals use Certificate of Need (CON) laws to disallow innovative competitors. Or the federal government enacts a "moratorium" on specialty hospitals to protect inefficient providers. We oppose hospital concentration as well as health plan concentration.



Supporting Consumer Choice

Another complaint came from some advocates of consumer-driven health care. They were surprised that we would oppose the largest supplier of health savings accounts and health retirement accounts in the country. Of course we considered that, but the principle of consumer choice has to trump support for a single type of product.

It would not be good for consumers to have a monopoly provider of HSAs. It also would not be good for entrepreneurs or innovators.

If there were a single provider of HSA-qualified coverage, it is not difficult to imagine that company would arrange to work with a single HSA administrator, a single bank, and a single information technology company. Once it had done that, why not buy those vendors and own a single, vertically integrated monopoly over all elements of health care financing and information?

Finally, some economists thought our antitrust analysis was simplistic. They said a monopoly is not necessarily inefficient and could be "welfare enhancing" for consumers.

Okaaaaay, I will cop to being a simpleton (especially in a one-page letter to a politician), but that's not how I see it. I think consumer choice is more important than predictions about economic efficiency, especially in something as important and emotional as health care.



The Fourth Dimension

In other health care policy events, the Duke Law School journal, Law and Contemporary Problems, devoted its Autumn 2006 issue to "Distributional Issues in Health Care." The entire volume is about 300 pages and includes articles by many of our friends and many other outstanding scholars.

The issue covers some breakthrough thinking, but it is no casual read. I'll deal here with the foreword, written by the editors, that summarizes the discussions in the journal.

They begin by arguing there is a neglected "fourth dimension" to health care analysis. Along with the issues of cost, access, and quality, policymakers should be dealing with equity. The equity issue includes not having health care paid for disproportionately by those with the least ability to pay, but it also should include allowing people to make their own judgments about what they are willing to pay for, the editors say, adding that the current system "greatly amplifies price-gouging opportunities for health care firms with monopoly power."

They say working people who want to have coverage are required to support (either through wages, taxes, or premiums) "services that have only modest marginal value (to them)." They argue this is because overregulation precludes firms from offering "significantly lower cost insurance options," and because the tax subsidy ensures "consumers do not see with any clarity the very heavy costs that their own expectations cause them to bear."

They also claim, "lower-income insureds get less out of their employer's health plans than their higher-income coworkers despite paying the same premiums."



Economizing Coverage

The editors cite articles from the issue in concluding, "in health care perhaps more than any other sector, the true interests of consumer-voters are ill-served by the political, regulatory, and legal environment."

They claim the uninsured are poorly served by not being allowed to economize in their choice of coverage and services. They believe "radically lower-cost coverage" could become available if people were able to limit their own access to services, and that comprehensive health insurance "exacerbates the price-increasing redistributive effects of health-sector monopolies."

They also say "some rather scathing things about nonprofit monopolies."

Overall, it is a provocative and very timely contribution to the discussion.


Greg Scandlen (greg@chcchoices.org) is president of Consumers for Health Care Choices in Hagerstown, Maryland.


For more information ...

Law and Contemporary Problems, Vol. 69, Issue 4, Autumn 2006, http://www.law.duke.edu/journals/lcp/

Greg Scandlen

Greg Scandlen is a senior fellow of The Heartland Institute and founder and director of... (read full bio)