As noted in a recommended diary today, Blue Cross Blue Shield of North Dakota has a 90% market share in that state and is organized as a non-profit mutual company, in theory owned by customers. Allegedly, BCBSND has a poor record of cost control. Both Paul Krugman and Ezra Klein think a public option would help solve the serious problem is high insurance rates in non-competitive markets, and few are less competitive than North Dakota's. North Dakota's dominant health insurance company is also in the midst of some executive compensation scandals.
But, if this near monopoly is so bad, why isn't health care in North Dakota more expensive? It has the fifth lowest private health insurance rates, and the second lowest Medicare reimbursement rates in the country.
Ezra Klein and Paul Krugman, in the midst of a debate over the importance of the public option this week. Klein wasn't convinced that a public option would provide meaningful cost control outside monopoly markets, while Krugman thought that a public option would have a major cost control impact even in non-monopoly markets.
But, they both actually agreed that an important function of the public option would be to help by providing competition in markets like North Dakota with a single dominant insurer.
Ezra Klein conceded that:
There are real advantages to the presence of a public alternative. Competition matters, for one thing, and there are a lot of states where one or two private insurers essentially control the market.
Similarly, Krugman argued that "a public plan would probably provide the only real competition in many markets."
If competition matters, then states like North Dakota, where one company has a 90% market share, should be among the most expensive places in the country to buy private health insurance. But, it isn't.
Despite the fact that one company has a 90% market share of its private health insurance market, North Dakota turns out to be a place with above average rates of private health insurance coverage, and relatively low private health insurance rates. It also has good rates of health care utilization and good health outcomes.
A single person premium for an enrolled employee there is $364 dollars per year less than the national median of $3,706 (about 8% below the national median). North Dakota is the fifth most affordable state in the nation in which to buy health insurance.
North Dakota's Medicare reimbursement costs are also relatively low: $1,304 a year per beneficiary less than the national median of $6,070 per year per beneficiary, more than 20% below the national median, the second lowest in the nation.
If we want to lower health care costs, North Dakota is better as a model than it is as a cautionary tale.
North Dakota can be seen a couple of ways. One is as proof that non-profit insurance plans are more competitive and drive out for profit insurers given a chance. Ergo, non-profit co-ops without government involvement are good enough, without government ownership or privileges.
It is also proof positive that conservative Republicans (who are strongly disproportionately represented among North Dakota voters) can manage just fine in a world with essentially no for profit health insurance companies.
You could look at North Dakota as proof that in the absence of competition, even the lack of a need to make profits and little need to do marketing doesn't prevent abuses by insurance company executives. Yes, North Dakota's rates are low, but they would have been lower if the executives of this non-profit were unfairly enriching themselves. This is the point that today's recommended diary on health insurance industry abuses tried to make today. But, as annoying as excessive executive compensation is, it is something that doesn't directly matter to the people who pay health insurance premiums unless it translates into higher health insurance rates.
The case that a public option would lower both executive compensation and in turn, health insurance premiums can be made, but it isn't at all rock solid.
A public option might press a dominant player to be competitive, but so can a new non-profit co-op, or new rules that allow health insurance companies to market themselves across state lines. Allowing interstate insurance company competition increases competition (at least until the industry shakes out), but also could gut the authority of state insurance regulators, which is one of the reasons that North Dakota's health insurance rates aren't out of control, despite a monopoly. North Dakota's Blue Cross and Blue Shield is not only a non-profit, it is also has its rates regulated a bit like a utility company.
Also, forcing new players into market could force all companies in the market, including BCBSND to spend more on marketing and claims administration, and less on health care. Is that really a good idea? This would destroy the benefit of some of the cost control methods, already in place, that Krugman thinks that a public option could provide.
The notion that North Dakota's insurance market is seriously broken, due to a lack of competition, compared to states with more health insurance competition, doesn't hold water. North Dakota's status as a de facto single payer state, due to this near monopoly by a non-profit health care provider, may actually be benefitting the state with reduced administrative costs and increased leverage with providers that single payer systems create.
Indeed, it is ironic that while North Dakota can't really resolve the argument between Ezra Klein and Paul Krugman over whether a public option will have much of a cost control impact in a state where there is competition, it actually disproves both of them on a point where they agree, that competition reduces costs, even when the monopoly player is already a non-profit company.
Is more than industry structure at work here? Sure it is. North Dakota partially has low health insurance rates and high levels of coverage because people who are seriously poor, or need cutting edge health care services tend to leave the state. But, there is no convincing evidence that North Dakota is running its health care system any worse than any other state, despite the fact that it is a poster child for a lack of competition in the health insurance market.