The uninsured, for our purposes, consist of three groups of people: the young and healthy, the poor and average, and the uninsurable. This package probably makes group one worse off, group two better off (depending on where the subsidy kicks in), and group three gets the most benefit, because now they pay the same as everyone else. (I am assuming for the nonce that this plan has what I've come to think of as the four pillars of reform: guaranteed issue, community rating, mandate, and subsidies). Only the first group make desirable customers, but things are being stacked so that it's hard to woo them, and them alone.
The mandate doesn't mean that insurance companies will be able to raise their average price--indeed, with the government breathing down their necks, they will face considerable pressure to lower it. As long as there is competition in the market, the mandate probably won't help any individual firm.
Ah, but is there competition in the market? Insurance markets tend to be highly concentrated. If the number of firms is small enough to allow collusion, then denying customers the right of exit is indeed a license to print money.
However, even oligopolies have a hard time colluding--market outcomes with oligopolies can range from rigged quasi-monopolies (think the Big Three), to fierce competition (think Airbus and Boeing). Which will health insurance be?
Somewhere in between, I think. Even with highly concentrated regional markets to play in, health insurers as a group aren't particularly profitable. I would expect to see much higher margins if the companies were really price makers. The fear of exit should hold down some of the profits, of course. But still. These levels don't scream "monopoly" at me.
So there will be some advantage to having more customers: more revenue across which to amortize your fixed costs. Insurance does seem to have scale benefits, after all. But a lot of those customers will be sick people who were previously uninsurable, which is not exactly a huge bargain. And with medical technology advancing the way it is, there's no telling when some lousy scientist will invent a great new treatment that you'll have to pay some unknown, but certainly huge, sum to purchase.
Perhaps I'm wrong. But overall, I don't see that insurance companies are getting a particularly fabulous deal out of this. Of course, if regulation forms a big new barrier to entry--as it tends to do--that could all change . . .
This article available online at:
http://www.theatlantic.com/business/archive/2009/09/how-much-will-insurance-companies-benefit-from-the-mandate/24735/
