ObamaCare Already Driving a Wave of Health-Care Consolidation — and Higher Costs

The following graph is from the New York Times, "Health Care Overhaul Depends on States’ Insurance Exchanges." The chart is supposed to illustrate how the exchanges will facilitate "the right mix of regulation and competition." But I'll be darned, I can't see anything here that closely resembles the market, and hence competition. Folks go to the "state health insurance exchanges" (where firms are supposed to be competing for patients), then straight to federal-state Medicaid programs (after passing a means test), then to the Department of Health and Human Services (the federal agency running Medicare), then back to the state insurance exchanges, and then to the patient meeting the service provider. And the line for "eligibility" to Social Security, Homeland Security, and the Treasury Department is not clear. I mean, seriously, eligibility? The Department of Homeland Security is now part of the ObamaCare insurance overhaul? Looks pretty messed up if this chart is any indication. But we have better picture at the Wall Street Journal, "Big Insurance, Big Medicine":

ObamaCare's once and future harms have been well chronicled, but the major effects so far are less obvious and arguably more important: A wave of consolidation is washing over the health markets, and the result is going to be higher costs.

The turn toward consolidation among insurance companies is not new, and neither is it among doctors, hospitals and other providers. Yet the health bill has accelerated these trends, as all sides race to anticipate and manage political risk and regulatory uncertainty. This dynamic is leading to much larger hospital systems and physician groups, and fewer insurers dominated by a handful of national conglomerates. ObamaCare was sold using the language of choice and competition, but it is actually reducing both.

The first surge will come among the 1,200 insurers doing business in the U.S., given that a major goal of ObamaCare is to convert these companies into de facto public utilities. Those regulations are now being written—and once they're up and running some medium-sized carriers will collapse under the new mandates and higher overhead. State insurance commissioners warned the Administration this month that "improper or overly strident application . . . could threaten the solvency of insurers or significantly reduce competition in some insurance markets." They also implied that bankruptcies are likely.

With these headwinds, investors and Wall Street analysts are now predicting a lost decade for health insurance stocks. But it may be more accurate to say that there will be a lot of losers and some very big winners. Mergers and acquisitions will increase dramatically once companies get a better look at the regulation and figure out the valuation of M&A targets. Larger carriers will swallow smaller ones quietly before they fail.

Both publicly traded and nonprofit insurers have been heading in this direction for years, as in any industry where there are returns to scale. Size is also important in a low-margin business in which capital is costly and political clout vital. But scale is far more central now, because ObamaCare standardizes benefits. Once insurers lose the freedom to design their own products, they'll essentially be selling commodities, and survival will depend on enrollment volume and market share.

There's more at the link, but this is exactly what (tea party) critics warned all through 2009: ObamaCare would drive private firms from the market in a process of stealth nationalization, with the end result being state-planned health rationalization (or death panels, but nobody likes to talk about those).