BrianGarst.com

Health care can be expensive.  There are lots of reasons why this is.  Some of them we don’t want to change, such as the fact that modern health care is capable of miracles.  Miracles aren’t cheap.  Other causes we don’t want to change, such as the fact that third-party payers eliminate normal market pressure to keep prices down.

Obama has another idea, however.  Control insurance prices!

President Obama will propose on Monday giving the federal government new power to block excessive rate increases by health insurance companies, as he rolls out comprehensive legislation to revamp the nation’s health care system, White House officials said Sunday.

Two reasons this is dumb:

1) Price controls don’t work.  It’s like trying to legislate away gravity.  Michael Tanner explains some of the consequences:

Insurers unable to charge more for an increasingly expensive product can be expected to trim costs in one of two ways:

• They can drop their most expensive customers — in this case, the sickest, who consume the most health care. Many companies are already doing this, a major source of dissatisfaction with the health-care system. In fact, the president wants to prohibit companies from doing this.
• They can cut back on their reimbursement rates to hospitals and physicians. But neither doctors nor hospitals, any more than insurance companies, are willing to operate at a loss. If payments fall below their costs, they’ll simply stop taking patients. One only has to look at government programs like Medicare and Medicaid to see how this works.

2) Insurance prices go up because health care prices go up.  Not only is Obama attempting to apply the wrong remedy, but he’s targeting the wrong problem.  It’s stupidity squared.

Barack Obama economic theory