The Affordable Care Act and Competition: Antidote or Placebo?

In the run-up to its enactment, the Patient Protection and Affordable Care Act (ACA) elicited howls of protest from opponents who claimed the federal government was, “taking over,” the American healthcare system, “micromanaging,” medicine, and generally exposing the nation to the bête noire of, “socialized medicine.” Hyperbole, misrepresentation and chauvinism aside, these sound bites suffer from a deeper flaw: They mischaracterize the fundamental thrust of the new law. Though the law establishes significant new regulatory authority, this is neither a new development (indeed it can be faulted for preserving pre-existing regulatory regimes) nor does it impair market competition. To the contrary, much of the law aims at improving conditions conducive to effective competition. However, it is far from clear that market competition will work out as scripted by theorists and proponents of the new law. Myriad market imperfections still complicate market interactions and regulation needs to be carefully tailored to assure effective implementation and minimize unintended consequences. Of even greater concern are the problematic market structures that pervade provider and payer markets. Concentration, embedded practices and professional norms may cause markets to operate suboptimally even if reform is implemented smoothly. Further, the ACA’s effectiveness in achieving its goals depends on the executive branch maintaining a steady hand in countless regulatory determinations required under the new law. This article surveys some of the misconceptions about health reform and the challenges it confronts in realizing proponents’ goals