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Obamacare's Exchanges Will Narrow Your Choice Of Doctors

September 24, 2013

By Avik Roy

Yesterday, Robert Pear of the New York Times discussed an emerging concern with Obamacare’s soon-to-be-online health insurance exchanges. “Many insurers,” he writes, “are significantly limiting the choices of doctors and hospitals available to consumers” in the market. Many critics of the health law made note of the news, holding President Obama to account for his repeated promise that “if you like your doctor, you can keep your doctor.” But here’s the twist: it’s actually a good thing that insurers are forcing hospitals and doctors to compete on price. Indeed, these “narrow networks” may be one of Obamacare’s best features.

Overall, Obamacare increases private insurance premiums

Overall, the blizzard of mandates, regulations, taxes, and fees that Obamacare imposes on its insurance exchanges will drive underlying premiums upward for people who shop for coverage on their own. That’s the finding from an extensive study on the subject that I and my Manhattan Institute colleagues conducted, which we’ve presented as an interactive map.

But the Obamacare exchanges do have a few salutary features—features that advocates of market-based health reform would do well to consider. The exchanges subsidize coverage on a sliding scale, which limits the degree to which subsidy recipients are disincentivized to work. All of the plans on the exchanges are sponsored by private companies; there is no “public option.” And, most importantly, individuals will have the opportunity to shop for the coverage that best suits their needs, instead of having that choice made on their behalf by someone else.

Ideally, in a truly market-oriented exchange, participating insurers would have more freedom to offer the kinds of plans that consumers really want. Obamacare significantly restricts those choices, which is a big part of why costs overall will go up. But the law does give insurers the freedom to compete in one important area: the doctors and hospitals to which they steer you.

Hospitals and doctors will have to compete on price

Every major insurer has conducted substantial market research into consumers’ attitudes about shopping for coverage. And consistently, what insurers find is that consumers’ highest priority is price. Just as most travelers shop for airline tickets based on price, rather than the brand or the in-flight amenities, most exchange participants will shop on the basis of premiums.

So insurers will compete to offer the lowest price, by contracting with the doctors and hospitals who charge them the lowest fees for treating you. “The networks will be narrower than the networks typically offered to large groups of employees in the commercial market,” said a spokesman for Cigna.

This is, in general, a good thing. Unlike government-imposed price controls, these contracts are voluntary. If doctors don’t like the fees that insurers are talking about, they don’t have to participate. If insurers think doctors are asking too much, they can take their business elsewhere. This is the essence of market-based transactions.

Prestigious but costly academic hospitals will lose business

In particular, this phenomenon means that exchange-based insurance plans will avoid the expensive big-name academic hospitals associated with prestigious medical schools. Those hospitals are usually the ones that charge higher prices because they know that they can.

Under Obamacare’s exchanges, people who really want to keep their doctor, at any price, will often have to pay higher premiums for the privilege. And people who prefer lower premiums, above all, might need to choose a different doctor. But the overall effect of this dynamic will be that hospitals and doctors will have to compete on price, just like people do in every other sector of the economy.

There are a lot of things about Obamacare that will take our health-care system in the wrong direction. But there are a few good things that we should learn from. One of them is that competition works.

Original Source:



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