A Competitive Market Can Lead To Lower Health Insurance Prices

A lot of people email us enquiring about the reasons for which health insurance prices differ so much in different states. For example if you live in Jackson then you have to pay almost twice as much as a person of the same age would pay in Nashville.

The Health Care Cost Institute has announced that it is working on an informative and transparent portal that will answer all of the consumer queries regarding health insurance plans. But since the portal is not ready yet, we decided to write an article explaining why the health insurance prices vary so much in different states.

We interviewed some of the experts on health insurance policies and to our surprise all of them said that the reason for higher prices is the lack of competition. For example, there are only two health insurance providers in Jackson where the health insurance prices are quite higher as compared to other places. In contrast to this, Nashville has 4 health insurance providers. This increases the competition in the market and brings down the price. Similarly there are 8 health insurance providers in Tucson where the health insurance prices are the lowest.

Many experts believe that due to the scarcity of health insurance providers, the positive effects of the new Affordable Care Act might stand neutralized.

A recent research conducted by the National Bureau of Economic Research has concluded that the prices of health insurances can be lowered by approximately 11 percent if all the health insurance companies were made to participate in the new markets. The findings make it absolutely clear that a competitive market can result in more affordable health insurance plans.

Another positive effect of having a competitive market is that it would save a lot of money that the Federal government has to spend on subsidies. Lower health insurance prices directly mean that the federal government will be required to spend less on subsidizing the health insurance plans in order to make them affordable.

According to an estimate, a competitive market can save approximately 1.7 billion US Dollars that the government spends on subsidizing the insurance plans.

It is a fact that according to the new Affordable Care Act, the insurance providers are liable to spend 80 to 85 percent of the amount received in premiums on health care. With no major incentive left for the insurance providers, it is obvious that insurance rates will rise both in terms of deductibles and co-payments.

The rise in insurance prices can also be understood from the fact that since there are no competitors, insurance providers won’t even look in the direction of slashing prices or making bargains with the hospitals.

The theory linking fewer insurance providers and increased insurance prices can be well understood by considering the example of Albany, Georgia, where there is only one insurance provider and it costs about 400 Dollars per month for a 27 year old to get basic health coverage.

The point is that in order to slash the prices you need competition and to have the competition you need competitors.

This article is authored by Sam Nelson. Sam is regular blogger and he often writes about health insurance policies on Healthcare Solutions Team blog.