Milton Friedman once observed that
one of the great mistakes is to judge policies and programs by their intentions rather than their results.
Social Engineer's Unrealistic Ideas
In his trademark pithy style, Friedman articulated the perennial trap policymakers fall into when they push government-centric solutions to various socio-economic problems.
And thanks to its dizzying structural complexities and sheer size, the health care industry is a favorite target of well-intentioned central planners.
The legislation is eerily similar to Obamacare in its assumption that the government can set the price of medical care.
The 2010 Affordable Care Act is the most glaring manifestation in recent history of social engineers’ desire to cure society’s ills through government intervention. Now nearly a decade old, Obamacare's original intention to bend the cost curve is belied by the reality of higher costs, among other disastrous results.
It is odd, then, that given congressional Republicans’ opposition to Obamacare, some are now backing Sen. Lamar Alexander’s (R-Tenn.) Lower Health Care Costs Act (LHCC). The legislation is eerily similar to Obamacare in its assumption that the government can set the price of medical care.
Government Intervention in Health Care
LHCC aims to protect consumers from surprise medical bills. This practice occurs when insured patients incur exorbitant fees after unintentionally being shuttled to out-of-network care facilities in emergencies. Surprise medical billing is understandably infuriating to the patient. It's important to acknowledge that within the bureaucratic labyrinth weaving around the healthcare industry, it is a real problem that needs to be addressed.
Yet, the “solution” offered by the LHCC is emblematic of the typical well-intentioned policies from Washington that ultimately result in a plethora of unintended negative consequences.
The government is ordaining insurance carriers with the undue power to set prices to the detriment of doctors, hospitals, and ultimately, patients.Known as "benchmarking," the bill's central provision aims to end surprise billing by virtually eliminating out-of-network care altogether. Under the LHCC, insurers will only have to pay health care providers the median in-network amount insurers negotiated with other providers in the area—i.e., the benchmark rate.
If this sounds like a system of government-mandated price controls, it's because that's exactly what it is.
Thanks to the LHCC, the government will force doctors and hospitals to charge only the amount that the insurance companies are willing to pay—even if that amount does not cover the cost of the procedure.
Anyone who understands the folly of price controls can see how this is an unviable plan. The government is ordaining insurance carriers with the undue power to set prices to the detriment of doctors, hospitals, and ultimately, patients.
Rand Paul's Critique
Sen. Rand Paul (R-Kentucky), the most conservative member of the Senate who is well-versed in economic theory, understands the implications of price controls better than most. In critiquing the LHCC, he said:
If you fix the price that ER doctors work at, you will get a shortage... This is what happened to Chavez, it’s what happened to Maduro. I don’t think we’re becoming Venezuela soon, but this is part of what they do down there.
Sen. Paul is exactly right. Because of the LHCC’s price controls, health care providers will have to find ways to compensate for the lost fees. One predictable solution would be to raise prices in other areas, causing a ripple effect of rising health care costs—an outcome that’s precisely the opposite of the LHCC’s intent. Additionally, more doctors and hospitals will leave the marketplace altogether, causing demand shortages that send prices even further upward for consumers. Mr. Friedman sends his regards.
Another major unintended consequence of benchmarking is creating the perverse incentive for insurance companies to narrow their networks further. After all, if the government authorizes insurers to pay the same amount irrespective of network status, why bother coaxing new providers to join their networks? And with shrinking networks come fewer provider choices, exacerbating the network access problem that’s already affecting predominately rural areas.
Surprise medical billing is a symptom of the macro problems in the healthcare industry—problems that require market-based reforms, not more government regulations that invariably make them worse.
Now they need to find a viable market-based solution without succumbing to the populist-left impulse of government overreach.
As an example, loosening or eliminating regulations that make it more difficult to expand insurance networks would increase competition between insurers, helping drive down costs. Other market-based alternatives with proven results were noted in a coalition letter to Sen. Lamar Alexander signed by 16 representatives of free-market think tanks and advocacy groups.
Principled free-market conservatives cannot shy away from these tough but worthy fights. They certainly cannot give up just because some of their fellow Republican lawmakers support big-government legislation that the GOP would unanimously oppose if it were the brainchild of liberals.
Politicos identified a problem: excessively high prices for out-of-network care. Now they need to find a viable market-based solution without succumbing to the populist-left impulse of government overreach.
The rich history of abject policy failures whose good intentions made them palatable to policymakers should caution Senate Majority Leader Mitch McConnell (R-Kentucky) and the rest of Congress away from rushing into solutions that rely on government bureaucrats and onerous regulations.