Health Care

10.02.12

Price Controls: Effective Political Poison

Sarah Kliff swats away David Brooks' suggestion that "Nobody knows how to reduce health care inflation."

It’s would be a pretty brutal truth except for the fact it’s not really true at all: We have a lot of examples to look at where governments have successfully held down the rate of health-care cost inflation. Most of them do that through some version of price controls, where the government sets the rates that doctors can charge for various services.

Now to be fair, Brooks explicitly identifies price controls as part of reining in rising health care costs. His mistake, I gather, is in saying that we don't know if they'll work.

But while Brooks is free to correct me if I'm wrong, his point was two-fold: price controls (driven by advisory boards and panels) can indeed rein in costs, but they are problematic due to being subject to the whims of Congress. His was a political, not an economic, argument.

It's not whether price controls can work, but whether Americans will accept them. Kliff herself acknowledges this point.

Rate-setting isn’t very well-liked in the United States. About 30 states implemented schemes similar to Maryland’s in the 1990s but have repealed them since. The heavy-handed approach proved unpopular, and states shifted toward managed care as their cost-control method of choice.

Rate-setting has a pretty decent track record in holding down health-care inflation but less of a stellar scorecard in American politics. In a way, the success of rate-setting makes pretty simple sense: When the government has the final say on how much a medical procedure costs, it’s pretty easy to hold down the price.

The most vociferous and politically popular arguments against the Affordable Care Act came because of the suggestion of price controls. Americans, particularly the politically active upper-middle and upper classes, have the disposable income to afford the type of care that may be disencentivized by price controls. Arguing that we know price controls would work without accounting for this structural impediment to reform is a tricky business.