Buyers cannot exercise market power even if they have it because they are stupid.

The Hodgepodge Of Market-Improving Regulation Health care markets are subject to market imperfections and regulations that facilitate the exercise of market power. Accordingly, several studies have proposed a menu of regulatory interventions that can enhance competition and improve consumer welfare. In its comprehensive survey of regulatory tools, the National Academy of Social Insurance analyzed eleven nonexclusive categories of interventions that promote market competition.45 Martin Gaynor, Farzad Mostashari, and Paul Ginsburg offered a thoughtful analysis of similar “actionable proposals” at the federal and state levels designed to enhance the competitiveness of health markets.1 Awareness of the need to invigorate market competition has also garnered some attention at the state level. Recently, a Massachusetts commission has closely analyzed—without recommending—various interventions to controlling price variation among providers.46 While certainly warranted, these changes— individually or collectively—seem unlikely to have a major impact on the problem of provider monopoly. Some measures act on the demand side by improving the conditions necessary for informed consumer choice, such as laws requiring transparency on price and quality; encouraging consumers’ adoption of health savings accounts; imposing enhanced consumer protections; and facilitating the placement of providers in tiers by health plans. Others seek to enhance buyer bargaining power—for example, by authorizing health insurance exchanges to engage in active purchasing (which empowers state exchanges to selectively contract with carriers, set tougher participation criteria than the federal standards, or negotiate price discounts in order to effectively serve consumers)47 or banning contractual provisions such as anti-tiering (clauses that prevent plans from offering lowercost products or require the plans to include all entities within a health delivery system in the top tier so providers get maximum reimbursement) and anti-steering and “most favored nation” clauses (whereby health plans require hospitals to give the insurer the best price and, in some cases, to charge plan competitors much higher prices), all of which have the effect of disabling health plan bargaining.1,20,48 However, there are reasons to question consumers’ capacity and willingness to use enhanced tools enabled by changes on the demand side to make health care choices in the face of behavioral factors, uncertainty, and fear.49 Moreover, the effectiveness of such measures is questionable, given that a large proportion of health care costs is borne by people who exceed annual out-of-pocket maximums. 17 Even more problematic is the stark logic of the “dominant provider” problem: Empowering consumer choice is of little benefit where choice is lacking.1