The Spectacle Blog

How ObamaCare Spurs Consolidation, Helps Big Insurers

By on 10.1.10 | 2:57PM

One of the big ironies of the health care debate was that supporters of the new law were arguing that government intervention was necessary to deal with the problem of consolidation in the insurance industry. ObamaCare was supposed to change all of that by fostering competition.

But now we're starting to get confirmation of one of the arguments that critics of the legislation were making -- that ObamaCare's onerous regulations would drive smaller insurers out of business, thus leading to further consolidation in the industry.

Today, the Wall Street Journal reports:

Financial services provider Principal Financial Group Inc. is exiting the health-insurance business in an early sign of expected consolidation as the impact of the health overhaul becomes clearer.

UnitedHealth Group Inc., the country's largest health insurer by revenues, Thursday agreed to renew the policies of Principal's roughly 840,000 members as contracts expire. Terms of the deal weren't disclosed. Analysts pointed to the agreement as a sign that big insurers could have a bright future gobbling up smaller firms' membership.

The federal health overhaul passed in March has prompted worries among regulators and industry groups that smaller insurers might have difficulty competing under rules that require insurers pay out between 80% and 85% of premiums on medical care.

During the health care debate, I explained how we could get real competition in health insurance.

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