Monday, January 16, 2012

Price controls have worked so well in medical care, let's do some more

Doing some more is exactly what the Administration is doing here with its case by case decision regarding how medical insurers do their business. Of course, this level of central plannng on a mico level is part of the disaster unfolding as we see Obamacare play out. See here for the newspaper account of the Secretary of HHS ordering an insurance company to rescind its rate increase.

Arnold Kling,a MIT trained economist,is fond of saying that economists do not hold back the good stuff when they teach economics. Rather they reveal the important stuff in econ 101. In econ 101 the effects of price controls are clearly spelled out.Price controls in the form of price ceiling create several things:
1.Shortages
2.reduction in quality of goods or services provided
3.Search costs including wasteful lines
4.loss gains from trade
5.allocations of economic resources.

Here is what George Mason University economist, Don Boudreaux, has to say about the HHS actions in his typical trenchant style.

As millions of more people will have insurance cards,and think they now have access to medical care, consider how much worse the shortage of primary care ( think Medicare price controls) will be and how much longer and more wasteful and frustrating the lines in emergency rooms will be.

Addendum: See here for the blog entry by John Goodman entitled "How Doctors are Trapped" for a detailed discussion of some of the particular ways that the CMS physician fee price controls are destructive and demoralizing to physicians and patients .

1 comment:

Anonymous said...

Price controls will not have quite the same effect in this context as it would in other contexts. When the cost of gas is capped, people started using gas more often. By contrast, if the price of chemo is capped, people will not get cancer more often.