The truth is that the notion of beneficial competition in the insurance industry is all wrong in the first place: insurers mainly compete by engaging in "risk selection" that is, the most successful companies are those that do the best job of denying coverage to those who need it most. But in any case, Arkansas is in effect a one-insurer monopoly state, with no competition at all unless a public plan is created.
Insurers' ability to issue risk-based pricing has been so compromised by community rating and guaranteeed issue mandates imposed by many states that, in those states at least, they don't really price on the basis of an individual's risk profile. They do compete on price, but even that competitive dimension is compromised by the fact that all 50 states regulate insurance prices.
It's bizarre to accept the government's notion that 42% or 70% of a market's share constitutes a monopoly. In any event, Arkansas has seven health insurers. Even if Arkansas Blue Cross Blue Shield has a 75% market share, that is not a monopoly.
Krugman also overlooks the fact that, because of the insurance industry's regulatory crazy quilt and power over pricing, it's impossible for consumers to buy health insurance from other carriers in other states. So instead of one big national market with robust price and service competition, what we have here in Amerika is 50 smaller, heavily regulated markets. And you thought the Constitution was supposed to fix this problem of the Articles of Confederation.
Well, it did, sort of, until two court decisions in the 1920s, which every insurance agent learns his first week of training, then promptly forgets his second week (or by his next trip to a local pub, whichever comes first). (I worked in the industry for five years in the 90s, and can't find my text book.) The decisions gave the states the power of comprehensive regulation of the insurance industry, and were bitterly opposed by the industry, although there were probably a few renegades on the side of the states.
Furthermore, Blue Cross Blue Shield has several competitive advantages over other carriers, as John Goodman notes in "The Birth of the 'Blues' "--and we're not talking about Muddy Waters and the Mississippi Delta. The Blues have been intertwined with the Federal and state governments for decades. They supply Federal workers health insurance, and generally pay lower tax rates than other commercial carriers. In some states they are set up as non-profit organizations. The Blues always had a welfare mentality about their coverage, and wanted it to cover all medical contingincies from the first dollar of exposure, with no deductible on the part of the insured. That eroded the incentive to maintain good health, eat right, exercise, etc. Why bother when Blue Cross Blue Shield would pay everything?
Contrary to what a bottom up vision of rent seeking would suggest, insurance regulation has always been driven from the top down by state legislatures. That doesn't mean that the insurance industry hasn't lobbied for certain anti-competitive regulations--it probably has. But insurance regulation has been driven by a "progressive" worldview held by politicians, planners, and bureaucrats, as well as by many beknighted voters. Rent seeking in the insurance industry has also been exhibited by professional providers of services covered by insurance mandates. For example, many states mandate coverage of "mental illness". Not surprisingly, psychiatrists, to name one group, lobbied those state legislatures heavily to have their services covered by insurance--by legislative diktat.
Here is a brief discussion of problems caused by mandated insurance coverage. What would happen to your auto insurance rates if your state government mandated that your carrier pay for all your oil and lube jobs, tire rebalancing, and all with you never having to pay a deductible?
Scott Sumner recently pointed out at his MoneyIllusion blog that Krugman wants to impose Swedish-style socialism on the U.S. That's why he wants comprehensive government-supplied healthcare. As for Sweden's socialism, no thanks.
He is entitled to his opinion, but not, as they say, to his facts, which are at odds with the historical development and institutional reality of the health insurance industry, as well as with government intervention.