In his health care speech before a joint session of Congress, President Obama pointed to Alabama as a state where a single health insurer dominated the market in order to buttress his argument for a “public plan.” An age old question in economics is whether a high market share indicates inefficiency or lack of competition.

A few observations:

1. Blue Cross and Blue Shield of Alabama is a nonprofit corporation licensed to sell health coverage to “subcribers.”
2. According to a regulatory examination report, in 2007 the company incurred medical claims equal to 92% if its premium revenues, a very high ratio.
3. Claims administration expenses represented 2% of premiums; general administrative expenses represented only 6%.
4. Net income, including investment income, equaled 2% of premiums.
5. According to The Birmingham News, the insurer recently “grabbed the No. 2 spot in a national Consumer Reports poll of patients’ satisfaction with their health coverage.
6. The company would appear to be very well capitalized.

Looks as if this is an excellent company.  Perhaps its no wonder that other health insurers don’t have more of the market, especially since there are no obvious barriers to entry or expansion that would prevent big national health insurers like United Healthcare and Aetna from expanding in Alabama.

(According to the latest available data (2006-2007) from Kaiser State Health Facts, of the adult (age 19-64) population in Alabama, 65.3% were covered by employment-sponsored health insurance, 7.5% were covered by Medicaid, 3.8% by other public coverage, 4.7% had individual health insurance, and 18.7% were uninsured.)

The long-awaited “Framework for Comprehensive Health Reform” released by Senator Baucus and the “Bipartisan Six” is marginally less prescriptive than the House Democrats’ bill (H.R. 3200). The proposal also is alleged to be moderately less expensive than H.R. 3200.

Examples of increased flexibility under the Baucus plan include: (1) a less comprehensive individual coverage mandate that includes an “affordability” exception, (1) creation of state-level co-ops instead of a government health insurance plan, (3) creation of state-level health insurance exchanges instead of a national exchange, and (4) greater permissible variation in health insurance premiums in relation to a person’s age (reducing premium subsidies from young to old).

Overall, however, the Sept. 9 Wall Street Journal lead editorial, The Perils of BaucusCare, hits the nail on the head. The proposed Baucus compromise reflects the same basic “government knows best” philosophy and therefore has substantially the same drawbacks as H.R. 3200.

Regarding financing, the Baucus outline proposes lower limits on tax exempt flexible savings account contributions and excise taxes on high cost insured and self-insured plans, which in effect would scale back the tax advantage of rich employer-sponsored plans. But, while the proposal eschews income tax surcharges on the affluent, it instead proposes annual fees beginning in 2010 of $6 billion on the “health insurance sector,” $4 billion on the “medical device manufacturing sector,” $2.3 billion on the “pharmaceutical manufacturing sector,” and $750 million on “clinical laboratories.” Moreover, it apparently threatens nonprofit hospitals with a loss of tax exempt status unless they satisfy new requirements for meeting community needs. Taxing health care services and insurers would obviously make health care and insurance less rather than more affordable. It’s pure political expediency.

It’s time to go back to the drawing board.

Here’s a link to the full article underlying Whole Foods CEO John Mackey’s August 11th editorial in The Wall Street Journal, which has led to a call for boycotting its stores.

Eat healthy, at home, and often.