It’s been leaked that Obama’s new healthcare initiative seeks to grant Washington the authority to veto price increases on health insurance premiums. This “get even with your insurance company” scheme might sound attractive to the masses, but it is another in a series of bad ideas from the left.
Whether on gas or healthcare, price controls ALWAYS reduce quality and/or create shortages. Businesses in competitive markets raise prices primarily because they seek more revenue to cover their expenses. The profit motive is there as well, but when other providers offer competing services, no single firm can unilaterally raise its prices just to make more money, lest its’ customers migrate to the competition. Increased profits come from innovation—new ways of doing things that are preferred by customers and/or cut costs. In other words, when buyers have choices, the market itself already maximizes quality and keeps prices as low as possible. Buyers can choose the combination of quality and price that they prefer.
If businesses in a competitive market seek to raise prices to cover increases in expenses, then not allowing them to do so will force them to reduce expenses by cutting quality or by offering their services to fewer customers. Cutting quality means that co-pays could rise or benefits could be restricted. Offering services to fewer customers means that providers must find ways to restrict access to their most costly customers, usually those who need coverage the most. Magically complying with the government mandate without these changes is not an option. There is no free lunch.
Needless to say, the response to price controls I just described would initiate a response from Washington that would force firms to offer more for less. In the end, providers would be required by law to offer consumers exactly what Washington wanted at a price Washington sets. In other words, we’d get the rationing of a single payer system through government control of private insurance companies.
Government control is not the solution here, but the problem. More competition is the key. If Obama wants better quality at lower prices, then he should keep government OUT of the equation. Instead, he should work with Republicans to allow providers more flexibility in their insurance offerings and enable consumers to purchase across state lines. More flexibility for providers will foster innovations that deliver more “bang for the buck.” More choices for consumers will force companies to innovate. None of this can happen because of government mandate.