Bringing More Competition to Health Insurance

This week, The Economist magazine has an article reporting that U.S. health insurance companies are making lots of money right now:

the share prices of America’s five biggest health insurers—UnitedHealthcare, Aetna, Humana, Cigna and Anthem—have all roughly tripled over the past five years. The big insurers have been consistently and highly profitable … . Unlike most big American firms, the trend is still upward. All five will probably report record profits for this year, next year and several more to come, predicts Ana Gupte, an analyst with Leerink, a research firm. For that, they owe a debt of gratitude to an unlikely creditor. The results of most financial firms may have buckled under the weight of new regulation, but health insurers appear to be thriving in the complicated new regulatory environment.


… in America, at least, health care turns out to be the most exciting corner of the [insurance] industry. The vast expense and unintelligible complexity of American health care may be a national disgrace, but they are a huge opportunity for firms that can navigate the system and minimise costs.

It’s not particularly surprising that regulation benefits the rich and powerful in this way. So what can be done about it? One obvious solution is to pull back on all that regulation, but that has been politically difficult. Another option, which I’ve mentioned before, is to encourage foreign insurance companies to enter the U.S. market. As noted, there’s plenty of money being made right now, which makes it a great time to get in. No doubt many foreign companies find the U.S. regulations daunting, and perhaps this is why they have stayed out of the market so far. But when you realize that regulation leads to such high profits, navigating the rules becomes worth the effort. And what helps foreign insurance companies also helps U.S. consumers, as increased competition brings prices down.


I can imagine that federal and state regulations make it difficult for foreign insurers to operate in the U.S. This is where trade negotiations can be helpful. For example, in the trade negotiations going on right now with the EU, European companies can ask the EU trade negotiators to press for rules ensuring that U.S. regulations don’t discriminate against foreign insurance providers.