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Two things complicate the realization of a free market in this sector: 1) It's standard practice to proclaim one's love for free markets when one is trying to

Two things complicate the realization of a free market in this sector: 1) It's standard practice to proclaim one's love for free markets when one is trying to enter a market. "Competition is good!" (for me) But then as soon as one's company is entrenched in said market, one mysteriously starts doing everything possible to make it less free. "Competition is bad!" (for me) The one consistent part here is, of course, the "for me" part. 2) In most of the healthcare industry you are not the customer; your insurance company is. So the incentives are perverted accordingly. Higher prices for providers means more revenue for them, obviously; that part is straightforward. Higher prices paid by insurers, you would think, means it's harder for them, but just like any business, they adjust their prices (premiums, rates) accordingly, so they can pass costs on to the consumer and still make a profit. So higher prices from providers just means the insurer is essentially insuring a higher "volume" of claim dollars and collecting a higher volume of premiums; in other words they're doing more business and making proportionately more profit.

nradov 9y ago
In practice that's not really how it works any more. Most "insurance" companies don't provide much actual insurance. Instead they act as third-party administrators for self-insured employers and other group buyers. Those customers are very price sensitive, so insurers have a lot of incentive to drive down provider prices in order to maintain market share. What's increasingly breaking the free market is provider consolidation. In many areas most of the small medical practices have been bought up by larger organizations. So those large providers control so much of the market that insurers have to pay whatever they charge. For example, in Northern California if an insurer (other than Kaiser Permanente) doesn't have Sutter Health in their network then their plans aren't viable.

nradov 9y ago

In practice that's not really how it works any more. Most "insurance" companies don't provide much actual insurance. Instead they act as third-party administrators for self-insured employers and other group buyers. Those customers are very price sensitive, so insurers have a lot of incentive to drive down provider prices in order to maintain market share. What's increasingly breaking the free market is provider consolidation. In many areas most of the small medical practices have been bought up by larger organizations. So those large providers control so much of the market that insurers have to pay whatever they charge. For example, in Northern California if an insurer (other than Kaiser Permanente) doesn't have Sutter Health in their network then their plans aren't viable.