Market Power
February 2, 2019
It is a no-brainer that business people don’t really like competitive market capitalism, despite all their exhortations about the value of markets. Just read any of The Wealth of Nations to find Adam Smith with the same view. Business people much prefer rigged markets, as long as they are on the inside.
So it is no surprise that new research finds that converting health care insurance from non-profit to for-profit leads to a rise in premiums (not the fall that would be anticipated because of greater market efficiencies).
Leemore Dafney reports on this in “Does It Matter if Your Health Insurer Is For Profit? Effects of Ownership on Premiums, Insurance Coverage, and Medical Spending,” in the latest edition of the American Economic Journal: Economic Policy (2019, 11(1): 222–265):
“I find both the BCBS affiliate and its rivals increased premiums following conversions in markets where the converting affiliate had substantial market share….The results suggest for-profit insurers are likelier than not for- profit insurers to exercise market power when they possess it.”
Next time someone says that markets are a solution that will bring down prices in privatized sectors, remember that context matters. Context, context, context.
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