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Tarah Cleveland
Professor Lau
Microeconomics 201
May 16, 2014
ObamaCare and Oligopolies
You are on your way heading east on I-94, headed towards downtown Minneapolis, when
suddenly your vehicle is struck by a semi-truck merging onto the interstate. Your four-door Dodge sedan
is sent spinning in a circle on the January ice. You end up hitting a side rail. Your passengers are not
injured, however, you feel like you have broken a few bones and maybe even a couple of ribs. You are
taken to the hospital immediately after the accident. Who covers the expensive hospital bill? Either the
government or your private insurance company. In the United States, there are two types of medical
insurance coverage that people may have: private health insurance and public health insurance. These
types of insurance are meant to help you out in the unfortunate event of an accident or illness. Public
health care is funded by the government. It is designated to meet all or almost all of the health care
costs from taxpayer contributions. Examples of public health care are Medicare, which is health
insurance for people 65 years of age and older and Medicaid, which is health insurance for low income
families (Wikipedia, 2014). On the other end of the spectrum is private health insurance. About twothirds of the population (not including the elderly population), seek private health care coverage
(Google Web definitions). ObamaCare, also known as The Affordable Care Act, is a United States law
signed by President Obama on March 23, 2010. Its main focus is to provide Americans with access to
affordable health insurance (What is ObamaCare / What is Health Care Reform?, n.d.). Large private
health insurers benefit from ObamaCare because smaller private health care providers have been driven
out of the industry, opening the door for these oligopolies to achieve economic profits (Matthews,
2010). How large private health insurance providers are benefiting from The Affordable Care Act and
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what this means for the price of private health insurance is a result of the regulations created by
President Obama himself.
An oligopoly occurs when only a few firms sell a good or service. This big business market
structure is often the result of government policies, like ObamaCare, that restrict or eliminate
competition. For consumers, this could lead to two negative outcomes—higher prices and lower quality
service. There are currently only twelve different health care plans that cover about two-thirds of the
people using private health insurance. According to the American Medical Association, close to half of
the states rely on two health insurance companies to insure seventy percent of the population.
Recently, smaller private health insurers were beginning to creep in on the top providers by providing
customers with new, innovative, and more affordable insurance options, adding some competition to
the industry. However, the 2010 ObamaCare policy has forced these smaller companies out of the
market. Their insurance plans were not capable of meeting all the requirements of The Affordable Care
Act. For many small companies, the fear of changing their plans to compete with the major providers
was too risky to keep them in business. The best thing many small companies can hope for now is that a
larger insurance company will buy them out (Matthews, 2010). New state “exchanges” are important to
the health care market. According to Merrill Matthews (2010), they are, by definition, the “state-created
and controlled markets where people and small companies will buy their coverage.” These exchanges
along with regulations in ObamaCare set the rules and decide who stays and who goes in the health
insurance game. Unfortunately for small health care firms, they lose to the big businesses, and are
forced to exit the market (Matthews, 2010). Below is a graph showing the top ten “big businesses”
providing private health insurance in 2010. These companies are now “making bank” off of the
customers who pay for their costly health insurance plans, all thanks to Obama.
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According to Roosevelt Institute, President Obama suddenly looks like a genius for his health
care legislation because more people will get health insurance coverage, thus improving the nation’s
health care. However, this does not cover the costs. ObamaCare does not contain cost limits for
insurance. This means more people will have to cover deductions, co-pays, annual limits, exclusions, and
out-of-pocket expenses. Many people will experience higher taxes and the health insurance premiums
will rise. Health insurance is the primary means of covering nearly all health care expenses. Obama’s
health care reform included in The Affordable Care Act actually promotes the capitalistic status quo of
luring people into expensive health care that is funded by private insurers. These insurers will turn
around and pass those health care costs onto you, the customer. This is essentially the health insurance
version of the Wall Street bailout—helping the rich get richer (Roosevelt Institute , 2014). Professor of
economics at Middlebury College in Massachusetts, Robert Prasch, points out that “affordability” does
not come from controlling costs, but rather shifting costs. Even those with declining incomes will
experience rising health care costs, rising health insurance premiums, and declining subsidies. Some
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health insurance customers have dropped their insurance companies because they cannot foot the bill
for health care (Roosevelt Institute , 2014). This may be a good decision for many people because the
health insurance companies will try to weasel their way out of covering medical costs even when you
are sick. The healthy pay expensive monthly premiums and do not receive coverage when they do get
sick. Unhealthy people are receiving care and paying nothing. In this situation, the insurance company
and the non-paying sick people win. The people paying the so-called “affordable” health insurance bills
take the loss. The best thing the people can do is to reduce the dependency on the insurance
companies. Nutrition, exercise, education, diet, and safety are great ways to keep you out of the
hospitals and keep your money out of the hands of the big business private insurers. Health care should
be available to everyone, however, it should not be based on income—ObamaCare does nothing to
manage this goal, which makes rising rates for private health insurance companies fair game.
As we are well aware of by now, ObamaCare set rules for private insurers, but these rules did
not adjust the prices or price limits, for that matter, that health insurance companies may charge. The
regulations set by The Affordable Care Act, in turn, benefited the ten large health insurance companies
in the diagram. These companies were able to raise the cost of their monthly premiums for customers,
while meeting the standards set by Obama’s legislation. This is where the private insurers reached their
victory. The smaller private health insurance companies were driven out of the health insurance market
because they could not meet Obama’s new standards. Thus, the market competition became an
oligopoly and the large private health insurance companies won. By taking control of the market, the
companies were also able to take control of the price of “affordable” health insurance—passing rising
health care costs on to their customers. Conclusively, ObamaCare legislation reinforced the status quo,
allowing the rich private insurance companies to form an oligopolistic market—becoming richer—and it
let the rest of society cover the costs.
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Reflection
The essay I prepared for my Spring Semester Abilities Project for Microeconomics 201, discusses
the oligopolistic market of private health insurance. It is astounding how the market for private health
insurance changed on a dime with the signing of Obama’s Affordable Care Act in 2010. The legislation
included new rules and regulations for private insurers, which is what actually pushed small private
health insurance firms out of the market, leaving behind 10-12 major firms—thus, forming an oligopoly.
From writing this essay, I gained a vast wealth of knowledge on the health insurance system, the
ObamaCare legislation, as well as the costs for customers, like my parents who still pay high premiums
for my health care costs. When, like me, you do not have to pay for health insurance—when your
parents worry about that—you have no concept of what the premiums are and what the insurance
companies will do to make a profit. In a way, I was completely oblivious before writing this essay. This
essay made me more globally aware as a student, but even more, as a citizen. I will be more informed
when the time comes for me to pay for my own health insurance.
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Bibliography
Matthews, M. (2010, July 7). America's Coming Health Care Oligopoly. Retrieved April 14, 2014, from
Forbes: http://www.forbes.com/2010/07/07/healthcare-reform-insurance-hospitalscontributors-merrill-matthews-obamacare.html
Roosevelt Institute . (2014). Obamacare: A Health Insurance Subsidy, Not Health Care Reform. Retrieved
April 16, 2014, from http://rooseveltinstitute.org/new-roosevelt/obamacare-health-insurancesubsidy-not-health-care-reform
What is ObamaCare / What is Health Care Reform? (n.d.). Retrieved April 14, 2014, from
ObamaCareFacts: http://obamacarefacts.com/whatis-obamacare.php
Wikipedia. (2014, February 3). Publicly funded health care. Retrieved April 14, 2014, from Wikipedia:
http://en.wikipedia.org/wiki/Public_health_insurance