You are on your way heading east on I-94, headed towards downtown Minneapolis, when suddenly your vehicle is struck by a semi-truck merging onto the interstate. Your four-door Dodge sedan is sent spinning in a circle on the January ice. You end up hitting a side rail. Your passengers are not injured, however, you feel like you have broken a few bones and maybe even a couple of ribs. You are taken to the hospital immediately after the accident. Who covers the expensive hospital bill? Either the government or your private insurance company. In the United States, there are two types of medical insurance coverage that people may have: private health insurance and public health insurance. These types of insurance are meant to help you out in the unfortunate event of an accident or illness. Public health care is funded by the government. It is designated to meet all or almost all of the health care costs from taxpayer contributions. Examples of public health care are Medicare, which is health insurance for people 65 years of age and older and Medicaid, which is health insurance for low income families [Wik14]. On the other end of the spectrum is private health insurance. About two-thirds of the population (not including the elderly population), seek private health care coverage (Google Web definitions). ObamaCare, also known as The Affordable Care Act, is a United States law signed by President Obama on March 23, 2010. Its main focus is to provide Americans with access to affordable health insurance[Wha14]. Large private health insurers benefit from ObamaCare because smaller private health care providers have been driven out of the industry, opening the door for these oligopolies to achieve economic profits[Mer10]. How large private health insurance providers are benefiting from The Affordable Care Act and what this means for the price of private health insurance is a result of the regulations created by President Obama himself.
An oligopoly occurs when only a few firms sell a good or service. This big business market structure is often the result of government policies, like ObamaCare, that restrict or eliminate competition. For consumers, this could lead to two negative outcomes—higher prices and lower quality service. There are currently only twelve different health care plans that cover about two-thirds of the people using private health insurance. According to the American Medical Association, close to half of the states rely on two health insurance companies to insure seventy percent of the population. Recently, smaller private health insurers were beginning to creep in on the top providers by providing customers with new, innovative, and more affordable insurance options, adding some competition to the industry. However, the 2010 ObamaCare policy has forced these smaller companies out of the market. Their insurance plans were not capable of meeting all the requirements of The Affordable Care Act. For many small companies, the fear of changing their plans to compete with the major providers was too risky to keep them in business. The best thing many small companies can hope for now is that a larger insurance company will buy them out [Mer10]. New state “exchanges” are important to the health care market. According to Merrill Matthews (2010), they are, by definition, the “state-created and controlled markets where people and small companies will buy their coverage.” These exchanges along with regulations in ObamaCare set the rules and decide who stays and who goes in the health insurance game. Unfortunately for small health care firms, they lose to the big businesses, and are forced to exit the market [Mer10]. Below is a graph showing the top ten “big businesses” providing private health insurance in 2010. These companies are now “making bank” off of the customers who pay for their costly health insurance plans, all thanks to Obama.
According to Roosevelt Institute, President Obama suddenly looks like a genius for his health care legislation because more people will get health insurance coverage, thus improving the nation’s health care. However, this does not cover the costs. ObamaCare does not contain cost limits for insurance. This means more people will have to cover deductions, co-pays, annual limits, exclusions, and out-of-pocket expenses. Many people will experience higher taxes and the health insurance premiums will rise. Health insurance is the primary means of covering nearly all health care expenses. Obama’s health care reform included in The Affordable Care Act actually promotes the capitalistic status quo of luring people into expensive health care that is funded by private insurers. These insurers will turn around and pass those health care costs onto you, the customer. This is essentially the health insurance version of the Wall Street bailout—helping the rich get richer (Roosevelt Institute , 2014). Professor of economics at Middlebury College in Massachusetts, Robert Prasch, points out that “affordability” does not come from controlling costs, but rather shifting costs. Even those with declining incomes will experience rising health care costs, rising health insurance premiums, and declining subsidies. Some health insurance customers have dropped their insurance companies because they cannot foot the bill for health care (Roosevelt Institute , 2014). This may be a good decision for many people because the health insurance companies will try to weasel their way out of covering medical costs even when you are sick. The healthy pay expensive monthly premiums and do not receive coverage when they do get sick. Unhealthy people are receiving care and paying nothing. In this situation, the insurance company and the non-paying sick people win. The people paying the so-called “affordable” health insurance bills take the loss. The best thing the people can do is to reduce the dependency on the insurance companies. Nutrition, exercise, education, diet, and safety are great ways to keep you out of the hospitals and keep your money out of the hands of the big business private insurers. Health care should be available to everyone, however, it should not be based on income—ObamaCare does nothing to manage this goal, which makes rising rates for private health insurance companies fair game.
As we are well aware of by now, ObamaCare set rules for private insurers, but these rules did not adjust the prices or price limits, for that matter, that health insurance companies may charge. The regulations set by The Affordable Care Act, in turn, benefited the ten large health insurance companies in the diagram. These companies were able to raise the cost of their monthly premiums for customers, while meeting the standards set by Obama’s legislation. This is where the private insurers reached their victory. The smaller private health insurance companies were driven out of the health insurance market because they could not meet Obama’s new standards. Thus, the market competition became an oligopoly and the large private health insurance companies won. By taking control of the market, the companies were also able to take control of the price of “affordable” health insurance—passing rising health care costs on to their customers. Conclusively, ObamaCare legislation reinforced the status quo, allowing the rich private insurance companies to form an oligopolistic market—becoming richer—and it let the rest of society cover the costs.
The essay I prepared for my Spring Semester Abilities Project for Microeconomics 201, discusses the oligopolistic market of private health insurance. It is astounding how the market for private health insurance changed on a dime with the signing of Obama’s Affordable Care Act in 2010. The legislation included new rules and regulations for private insurers, which is what actually pushed small private health insurance firms out of the market, leaving behind 10-12 major firms—thus, forming an oligopoly. From writing this essay, I gained a vast wealth of knowledge on the health insurance system, the ObamaCare legislation, as well as the costs for customers, like my parents who still pay high premiums for my health care costs. When, like me, you do not have to pay for health insurance—when your parents worry about that—you have no concept of what the premiums are and what the insurance companies will do to make a profit. In a way, I was completely oblivious before writing this essay. This essay made me more globally aware as a student, but even more, as a citizen. I will be more informed when the time comes for me to pay for my own health insurance.
Wik14: , (Wikipedia, 2014),
Wha14: , (What is ObamaCare / What is Health Care Reform?, n.d.),