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Wide Disparities Between Rural And Urban Health Insurance Markets

March 14, 2017

It certainly is not a new  issue that requires being tackled.  The wide disparities in rural and urban health insurance markets have been examined for decades and the answers still seemingly far away. As the troubled and troubling Republican health care bill is top and central to the nation’ news the following is worth a read.

Chief among them is the concentration of doctors and hospitals that offer services to rural residents. In areas where there is just one hospital or physician’s practice for miles in any direction, insurers struggle to negotiate lower prices, but the higher insurance costs get passed on to consumers in their premiums.

“Just like any other market, if hospitals or doctors or pharmaceutical companies or anybody faces less competition, they have higher prices. That’s very simple, and it’s that way if you buy gasoline at the pump, it’s that way with milk, with anything else,” says Martin S. Gaynor, a Carnegie Mellon University professor who focuses on health care competition. “The more expensive is health care, the more expensive and less affordable health insurance is going to be. It’s really that simple.” A 2015 National Bureau of Economic Research study that looked at the costs private insurers pay for health services across the entire country found that even after controlling for factors like demand and local cost-of-living, hospitals that had monopoly power in their markets charged 15 percent more than those in more competitive markets.

That dynamic drives up prices and makes it less attractive for insurers to participate. Insurance companies must build a network of providers that can offer certain services, according to federal and state rules about how many specialists must be “in network” and how far from a given enrollee those providers can be located. It gets much more complicated and time-consuming to build networks in places with fewer providers.

Demographic trends also make rural areas less attractive to insurers. If insurance companies want to make money, they need to attract a balance of healthy customers to offset the costs of people who need a lot of health services. That mix is harder to achieve in rural areas, in part because there are fewer people overall and the low population density makes it tougher to spread out the costs of caring for the sick.

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