Tags: Healthcare Reform | Medicare | Presidential History | nixon | wage | increases | alexander

Price Controls Won't Reform Healthcare

price controls will not reform healthcare


By    |   Tuesday, 13 August 2019 01:15 PM

If this hasn’t happened to you, it’s probably happened to someone you know:

A sudden health scare sends you to an Emergency Room, where you had no choice over which care center you went to. Weeks or months later, a big bill arrives, and your insurance company won’t pay any of it, because the provider was "out of network."

It’s a very important issue that you’ve heard about from me before.

It’s understandable that many people want the federal government to get involved and "do something" to prevent this. That’s exactly what Sen. Lamar Alexander, R-Tenn., is trying to accomplish with his "Lower Health Care Costs Act" of 2019.

The problem here isn’t the intention. It’s the approach.

Alexander’s bill attempts to control costs by having the federal government set prices for medical services. And price controls simply do not work.

Consider just a few of the times the federal government tried to impose price controls, just within living memory:

In the early 1970s, the Nixon administration tried to impose "wage and price controls" to stave off inflation. "I am today ordering a freeze on all prices and wages throughout the United States," Nixon announced in August, 1971.

He also put together a "pay board" and a "price commission" that would be tasked with approving any increases after the initial freeze lapsed.

It didn’t work, of course.

"Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets," write historians Daniel Yergin and Joseph Stanislaw in, "The Commanding Heights."

What finally ended inflation is when politicians stayed out of the way and allowed the Federal Reserve to set higher interest rates (which are, in effect prices).

Eventually the economy stabilized. Then there was the Arab oil embargo.

To try to prevent gas shortages, the federal government set the price of gasoline.

But it ended up causing the very shortages it was trying to eliminate.

The Library of Economics and Liberty notes that price-fixing meant long lines for fuel, and that, "The true price of gasoline, which included both the cash paid and the time spent waiting in line, was often higher than it would have been if the price had not been controlled."

That’s because of the opportunity cost — the time people wasted sitting in line for gas.

Note that when gasoline became scarce again during the Gulf War and the War in Iraq, the government didn’t set prices but allowed them to float.

Prices increased, but customers never had to wait in line for fuel. The market set a fair price. Those price increases were soon reversed by market forces. Now, with American oil generated by fracking, gas prices are once again affordable.

Finally, consider a place where the federal government is already trying to impose price controls — healthcare.

A few years ago, Washington slashed Medicaid reimbursement rates by 43 percent.

Many doctors decided to simply stop seeingnew Medicaid patients. A move that was supposed to control costs simply meant patients had fewer options and longer wait times.

So, what’s the solution for surprise medical billing?

Certainly not more of the same old, same old.

A better way to protect medical consumers is to settle disputes through a system of arbitration, which brings out the best of the free market. When surprise billing occurs, hospitals and insurers would both submit their best price offers to an arbiter, who would then settle it from there. This would trigger market competition and drive prices down, in a way that price controls would not.

The federal government is powerful. But the market is more powerful.

We need to unleash the power of the market to bring down the cost of healthcare.

That’s the only approach that can deliver long-term affordability.

Dr. Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.

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The federal government is powerful. But the market is more powerful. We need to unleash the power of the market to bring down the cost of health care. That’s the only approach that can deliver long-term affordability.
nixon, wage, increases, alexander
Tuesday, 13 August 2019 01:15 PM
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