When I discuss the "enemies of the market" in my classes I make it clear that on a general level we have monopolies (price setters), oligopolies (price manipulators), belief systems and cultural mores (which have worked historically against women, "different" people, etc.), and favorable legislation (which unduly rewards specific groups & individuals). All of these factors influence and skew markets in a way that violate the "laws of justice" Adam Smith believed was crucial for markets to function properly.
Because these issues have not disappeared from our world - and don't appear to be disappearing any time soon - the state must remain vigilent and active. These issues represent the key reason I argue that there can never be a pure "free market" where merchants and industry do what they want. When left to their own devices people and industries will seek to manipulate and change market conditions in their favor.
I am not stating anything new here. Advantage seeking is not only a human constant, but it works against the logic of the market when it unduly shifts reward to market manipulators. It also makes the following so compelling ...
Jane Hamsher at Firedoglake.com has an interesting post describing how health insurers in Massachusetts are not going to offer new plans for the state’s Health insurance "Connector" program. Responding to state's insurance regulator's decision to deny most of their requests to raise insurance premiums, health insurance companies are pretty much taking their ball and going home.
While Hamsher notes some fundamental problems that need to be addressed in the system, she raises an interesting point that should be a real concern for everyone: What happened to California's electricity markets beginning in 2000 may now be happening in the health insurance markets of Massachusetts.
Recall, late in 2000 energy suppliers began manipulating energy markets by deliberately withholding energy from California's market. We know from subsequent court cases and released industry e-mails that California's energy crisis was not driven by market forces. Rather it was driven by simple greed. Is the same thing happening in Massachusetts' health insurance market? Is the industry going to manipulate or deliberately remove it's product from the market? It's hard to tell at this point, but there's little doubt that the health insurance industry has sued in the past to hike premiums for no other reason than to maintain more than generous profit margins.
In the case of Massachusetts private insurers are upset because their requests for 8-32% price hikes were denied by state regulators. The regulators, for their part, don't believe the insurers need the 8-32% price hikes because cost increases also occur whenever the industry also adjusts fees for each business, geography, industry, and the size and age of a workforce. In a few words, prices are already going up. They see their general price hike requests as little more than an effort to secure government support for price gouging.
Like Wall Street, health insurers want more than generous government guaranteed profits.
All of this raises two questions. First, would the availability of a public option (think public universities) help in Massachusetts? Second, should the health insurance industry be regulated like (or turned into) a public utility? Finally, is Massachusetts a test case for what's going to happen at the national level? (OK, that's three questions, but it's an important one.)
Common arguments in favor creating a public utility and/or a public option include (1) the desire to control market power in the face of abuse, (2) facilitating competition, (3) facilitating economies of scale, and (4) stabilizing markets where price gouging and a lack of service exists. Critical for both of these options is that government believes the industry, left on their own, would behave in a way that's contrary to the interests of society (price gouging) and/or government objectives (public health). These are the issues now confronting Massachusetts.
Turning health insurance into a goverment regulated public utility would raise more questions than I care to address at this time. But one thing is clear. As Hamsher notes, the health insurance industry may be preparing for a larger battle, with Massachusetts being the test case. If California's electricity battle is their model, they just might get their way.
And the fun begins ...
- Mark
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