Competition among private insurance companies in America doesn’t result in lower premiums. The Medicare Advantage ended up costing more money than traditional Medicare. The federal employee heath insurance exchange, like many state employee exchanges, have not produce significantly lower premiums or slow growth rates. And as the New York Time Economix blog points out, having more competitive insurance market in a state is not associated with lower premiums. From Economix:

A simple analysis of the nationwide growth in premiums over the last decade is illustrative. Using 2001-10 data from the National Association of Insurance Commissioners, we examined the relationship between insurer market power (defined as the market share of the two largest companies) and changes in premiums. We found that concentration of insurer power — hence less competition – was not significantly associated with higher premiums, as can be seen in the chart below.

Hawaii is a good example. Kaiser Permanente and Blue Cross Blue Shield together controlled more than 90 percent of the insurance market in 2001. In this highly concentrated market, the average premium rose only 72 percent over the decade, compared to an overall increase of 135 percent nationwide. By contrast, Virginia had one of the most competitive markets in 2001, with its two largest insurers controlling only 25 percent of the market, yet premiums in the state increased nearly 140 percent over the period.

Greater competition in the insurance industry — either through health insurance exchanges or other measures — may not lower insurance premiums. Weakening insurers’ bargaining power could instead translate into higher costs for all of us in the form of higher premiums.

The historic data strong suggests creating health care exchanges or marketplaces in America will not control cost. During the health care reform debate many of the Affordable Care Act top promoters seems happy to selectively forget this fact, but now that the law is about to go into effect we can’t ignore reality. We are currently launching a very expensive effort to set up health care exchange all over the country with basically no reason to believe they will reduce cost. For the sake of the country I hope they defy history and bring cost down, but I won’t bet on it.