The Affordable Care Act’s Rate Hikes

Health insurers around the nation are now submitting their premium rates to the government for inclusion in the online exchanges during the 2016 open enrollment period. Unsurprisingly, the rates are increasing significantly over 2015.

And why is that not surprising? The answer to that question might be found in a pair of other news stories that appeared in the press this past week. After Walgreens announced its intention to purchase Rite Aid, news spread of Pfizer’s ongoing negotiation to purchase Allergan.

In a sense, the first news story reflects a trend that is explained by the second news story. After all, pharmacies like Walgreens and Rite Aid purchase the drugs that are manufactured by firms like Pfizer and Allergan. As the manufacturers of any product category merge into more dominant sellers, customers will inevitably merge to keep pace and maintain their own market power.

Likewise, hospitals are now merging into health systems to more effectively transact with the physicians who are merging into provider networks. And as the federal government continues to promote the aggregation of Accountable Care Organizations, these hospital-based systems are increasingly seeking to become larger in order to negotiate more forcefully for both physician services and insurer contracts.

In fact, at every level of the health care industry, mergers and acquisitions are progressively eliminating competition by creating dominant monopolies and oligopolies. It’s the natural evolution of a health care market that is regulated by government officials who don’t seem to be overly concerned about enforcing anti-trust law.

So what happens when such consolidation occurs? Free from any level of competition that might constrain price hikes, the surviving health care organizations pass along rate increases more easily to their customers. Thus, commercial pharmacies charge health insurers more for their products, while health networks charge them more for their services.

And then health insurers pass along these higher costs to consumers on the Affordable Care Act (ACA) exchanges, and to government programs and private employers as well. Politicians then blame the ACA for the rate hikes, and vow to eliminate the law’s regulatory functions over the health care system.

Of course, the prices hikes that have sparked the ire of those politicians are largely attributable to the failure of the regulators to enforce anti-trust law to begin with. If the politicians succeed at abolishing the ACA, insurers will be free to increase their rates even more quickly. And if they fail, then the current trend of industry consolidation will nevertheless enable them to continue increasing rates, albeit more slowly.

In other words, whether or not we agree on the wisdom of passing the ACA into law, we should be able to concur that market competition in the health care sector (or in any other industry sector, for that matter) helps keep prices affordable for consumers.

But if competition in the health care sector continues to be eliminated through mergers and acquisitions, it won’t really matter whether the ACA remains in place. Health care will simply, and inevitably, become unaffordable for all of us.