Give health insurers more clout

Tuesday's Washington Post told the story of Sally Marrari, a Los Angeles garage owner battling cancer and lupus. Marrari lost her health coverage in 2006 because her insurer, a Blue Cross company, discovered a pre-existing condition, which it used as the basis for eliminating her coverage.

Marrari and 6,000 other former policyholders are now suing Blue Cross. The Post story approvingly quotes an academic expert on health policy about the Blue Cross case: "This is probably the most egregious of examples of health insurers using their power and their resources to deny benefits to people who are most in need of care."

Who will speak up for the health insurers? They rank among the most detested corporations in the country. Col. Qaddafi gets better press. But if you hate the insurers, at least you should hate them for the right reason. The great defect in the American health market is not that insurers have too much power. The great defect is that insurers are too weak.

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It's a heretical thought, I know, but hear me out.

Health costs are rising at fantastic speed, having doubled in just the past 10 years. If insurance companies were as powerful as they are alleged to be, they would have imposed discipline on their suppliers and driven those costs down, just as Wal-Mart and other mega-retailers do.

But between health insurers and medical providers, it's the providers who exert greater clout. As the record shows, doctors, hospitals, labs, drug companies, medical-device manufacturers, and a host of others all push prices higher and higher; insurers for the most part pass those increases on to customers.

Those customers, however, push back. Remember, the real customers for most insurance products are not the people insured. The real customers are employers who choose insurance coverage and write the checks. Individual insureds (i.e. consumers) are carried along without much say in the matter.

Squeezed between medical suppliers who refuse to charge less, and corporate customers who refuse to pay more, insurers are tempted to take it out on the little guy.

Insurers lack clout because the United States does not have a national health insurance market. It has 50 state markets, each governed by its own rules and regulations. Individual insurers can gain impressively large shares of these small individual markets, allowing them occasionally to wreak havoc in the lives of individuals like Sally Marrari. But while insurers have enough power to make a few people miserable, they lack sufficient power to make large numbers of people happy. They cannot do what Wal-Mart does, which is bundle together tens of millions of customers and proceed to read the Riot Act to suppliers: "Lower your costs or we'll take our business to someone who will."

Health reformers in the Democratic Party understand the cost-cutting, system-rationalizing potential of more powerful insurers. But their mistrust and dislike of the private insurance industry drive Democrats to assign the job to the government instead.

But this truly is a case of capitalism failing because it has not been tried. Before we substitute government for free enterprise, let's at least give enterprise a fair chance.

This is the conservative alternative to the massive government intrusion represented by Obama's reform. It's an alternative that would put an end to our collapsing system of state regulation of health insurance and build a true national market with national standards. In that robust market, a few large and powerful competitors would emerge to do for health-care what Wal-Mart does for groceries and hardwares: effectively represent millions of consumers against the providers, forcing down costs to consistent and affordable lows.

The states regulate health insurance under the auspices of a federal law left over from the 1920s. However, that same law provides for the federal government to resume regulatory authority over insurance at any time. The time is now—not in order to expand government power, but precisely in order to obviate the need for government intervention.