Some laws are imposed by legislatures, through a constitutional process. Others are imposed by bureaucrats, through a much more controversial process. But some laws, such as the laws of economics, aren’t imposed by anyone; they just exist. These laws simply cannot be broken.
Consider the case with compensation. If you reduce pay for a profession, fewer people will choose that profession. At the same time, some people who are already in the profession will leave it for something that pays better. This can eventually lead to shortages.
These facts explain why a Senate bill called the “Reduce Health Care Costs Act” would never work. The goal is a good one: to eliminate surprise medical billing. This billing happens when a patient receives treatment from a doctor who is not in the patient’s insurance network. It most often occurs at Emergency Rooms, where the patient needs immediate care and has no control over what doctors provide that treatment.
But the LHCC, sponsored in the Senate by Lamar Alexander of Tennessee, aims to eliminate surprise billing by setting the prices that doctors may charge for their services in a given area. Price fixing does not work, in large part because no government can have enough information to accurately set prices.
With that said, it is true that price controls are often based on utilizing actual information, and that’s what Sen. Alexander’s bill proposes to do. It would determine the median cost of coverage in a given market and set that as the price the consumer would have to pay. However, note the similarities to Medicaid, which sets compensation at rates below what doctors are willing to work for. That’s caused shortages of doctors willing to accept new Medicaid patients. In the same way, the LHCC would cause shortages in ERs, just where people need care the most quickly.
None of this is news. Back in June I wrote that LHCC’s price controls are, “an economic fallacy that has been debunked for several centuries,” adding that, “this proposal is a dangerous one that is destined to fail.” And it does indeed seem to be failing, which has legislators flailing. Conservatives have come out in full force against the LHCC, making price controls seem like the political liability that they are. So some Democrats now want to impose them through bureaucrats (guided by lobbyists and big insurance companies) instead of the legislative process.
In the Democratic-controlled House of Representatives, Ways and Means Committee Chairman Richie Neal recently floated a proposal that would impose price controls thorough bureaucracy, instead of Sen. Alexander’s legislative process.
The Hill newspaper reports that Neal sent a letter to fellow Democrats “proposing a new solution that would essentially punt the details of the fix to a committee consisting of stakeholder groups and the departments of Health and Human Services, Labor, and Treasury. The committee would come up with recommendations that would then be issued in a regulation from the administration.”
So we’re back where we began, with government-run health care imposed by Washington. It’s just that in Neal’s case, the policy would come from three executive branch offices instead of one. But handing rate-setting power to bureaucrats and lobbyists is destined to fail. It may as well be Medicare for All. It’s just price fixing by a different name.
Even worse, it will take years for the new rule to be written and implemented. There will be new presidential administrations in the future, and they might see the rule differently. Republicans in Congress could be putting the power of price fixing in the hands of Elizabeth Warren, Bernie Sanders, or someone even more far left. Alexandria Ocasio-Cortez will be old enough to run in 2024. In fact, liberal groups are lining up to back this proposal. Families USA (which endorsed Affordable Care Act) joined 17 other pressure groups on a letter to House Speaker Nancy Pelosi that called for implementation of the Lower Health Care Costs Act’s rate-setting. The Neal proposal would accomplish that through a different channel.
Meanwhile, both Houses are ignoring a better solution that’s already been offered in Congress.
Sen. Bill Cassidy of Louisiana is a practicing doctor. He knows that Internal Dispute Resolution (IDR) is the only true market-based solution that can eliminate the threat of surprise medical billing without creating further turmoil. Cassidy has introduced a bill that would empower an independent mediator to work with hospitals, doctors, and insurers to privately resolve pricing disputes. This is similar to a process used in New York State that has already been proven to lower costs and reduce patient complaints while also ensuring doctors get paid fairly.
Only free markets, which rely on voluntary cooperation among providers and consumers, can accurately set prices. A free market approach can help reduce surprise medical billing. However, if policymakers opt for price controls instead, they’ll only make the problem worse.
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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