President Obama recommends competition

President Obama published a paper in JAMA, touting how the Affordable Care Act has been successful. The paper also recommended increasing competition, whether that be via a public plan in areas that only have one or two insurers, or whether that be streamlining the process to approve biosimilar drugs. Bloomberg commented on the paper in the context of two proposed major mergers in the health insurance industry.

Competition is certainly important in reducing costs and improving quality across an industry. Ironically, though, a public option might be unfair competition if the government significantly subsidizes it, and might serve to diminish competition if the incumbents believe that they cannot compete. An alternative policy is for the government to offer subsidies (available to either all insurers or all patients) in markets where there are fewer than three insurers.