Governments have been trying (and failing) to regulate prices in a variety of ways and over a range of commodities for thousands of years. In their 1979 book, “Forty Centuries of Wage and Price Controls,” authors Robert Schuettinger and Eamon Butler begin 4,000 years ago with the Code of Hammurabi, itself nearly 4,000 years old. Hammurabi outlined numerous specific prescriptions to set a “just” or “fair” price. A thousand years later, the ancient Egyptians tried to control grain prices using the pretext of preventing a famine. Over time, the government regulated more and more until, ultimately, it owned the land and leased it to the farmers.
Other examples are abundant. The economic map, from China to ancient India to Greece, is littered with failed examples of attempts to replace free markets with government schemes and regulatory gimmicks. Time after time through history, these efforts fail. Oftentimes, worse than failing in their stated mission, they cause collateral damage that “smothers economic progress” — an unintended consequence that lingers for centuries.
Schoolchildren in our country read about the travails of George Washington at Valley Forge, not knowing that many historians and economists believe the terrible conditions that winter were a direct cause of price controls imposed by the Continental Congress. Modern history shows what economist Alan Greenspan called “unbelievably stupid” behavior continues to be repeated despite Einstein’s First Law of Insanity (doing the same thing over and over, expecting different results).
In 1974, inflation was threatening the U.S. economy. On October 8 of that year, President Gerald Ford gave a speech outlining public and private steps to affect supply and demand. As we had long since entered the age of branding, the campaign required a catch phrase or slogan. The geniuses at the White House came up with the soul-stirring “Whip Inflation Now.” (Yawn.) The acronym — WIN — was neat and tidy enough to fit on the inevitable lapel pins that were so insipid they quickly became hard-to-find collector’s items.
Since 1965, the federal government of the United States has created programs that are the financial equivalent of the Cookie Monster: a creature with an insatiable appetite. Okay, the Cookie Monster eats cookies rather than taxes, and he is kind of endearing — something that can’t be said for the tax code — but you get the point. State governments also are not exempt from unbelievably stupid fiscal behavior. Worse, occasionally a state’s behavior is viewed as a harbinger of future federal actions.
The problem with cost caps
In 2006, Massachusetts enacted its version of health care “reform.” Every benefits professional I know — and I mean every one of them — understood the costs in Massachusetts — already higher than the national average — would inevitably increase. Against that backdrop, on May 4 of this year, The Wall Street Journal reported that the state was “laying the groundwork for an ambitious new effort to rein in health spending that would be closely watched nationally in a state that’s become a health-policy bellwether.”
Massachusetts is blessed with many of the finest institutions of higher learning in the country. Some of the best minds reside at renowned and venerable institutions, such as Harvard, M.I.T., and a spate of others. Great hospitals are also a part of the state’s rich tradition. Yet only a few of those really smart folks (Harvard’s Regina Herzlinger comes to mind) understand that unless you effect a true single-payer system, you have to change the way medicine is practiced and delivered in order to change the true cost.
Legislators in the Bay State are introducing bills to cap health care spending at the rate of the state’s gross domestic product. A discussion about the inaccuracies of measuring the GDP at a state level is far beyond the purview of this column. The question to ask is: what does GDP have to do with health care spending?
Beyond the feel-good effects of setting some kind of cap, one thing in the proposed legislation does make sense: the desire to move away from fee-for-service, in which providers bill in proportion to the number of services they provide. That’s a great goal, but it can no more be successfully accomplished by legislative fiat than the attempts at price control over the past 40 centuries.
PPACA attempts to turn insurance carriers into little more than regulated utilities. The argument was made that the insurance carriers are responsible for the high cost of care. That’s as wrongheaded as blaming homebuilders for the homeless problem. Moreover, a recent study from the Henry J. Kaiser Family Foundation predicts that, for all of the hoopla over MLR rebates, employers this year are projected to receive an average of $127 for each covered employee.
Pulling back the curtain on (allegedly) excessive administrative expenses has revealed a diminutive Wizard of Oz — hardly the comic book super villain MLR was supposed to slay. Joanna Anongiovanni, president of the Texas Association of Health Underwriters, gets it right when she says, “Without addressing the true cause of increasing rates, the actual cost of care, we will be ineffective in solving the health care conundrum in our country.”
While it is great to have a villain to advance your plot, a credible villain is a much better device. Insurance has been expensive because health care is expensive. Insurance costs are a mirror reflecting the costs of care. This includes the direct cost as well as the cost shift from government programs (Medicare and Medicaid) that set artificial price controls for their populations. The ultimate question is, of course, to whom will costs be shifted when there is no one left to carry the burden of the shift?
The current government mindset toward a “solution” of the health care cost problem could only work in a true single-payer environment. Having a government-controlled free market is as much an oxymoron as “jumbo shrimp” or “Senate Intelligence.” Somewhere in the basement of the White House are boxes of “WIN” buttons. As one pundit suggested during the Ford administration, we should wear them upside-down so they read “NIM” — No Immediate Miracles.