June 3, 2015
As originally published in the New Hampshire Union Leader
In the world-turned-upside-down that is the New Hampshire legislature, a group of former conservatives has been reduced to arguing that the only real fix to health care is government price controls. Concerned about the lack of competitive pressures and other market mechanisms, they have decided the best of all solutions is to simply give up and give in to price controls. A legislator in search of a grand solution that can bear his signature in bold type is easily seduced by what he would eagerly call socialism if proposed by his opponent. But we are all easily persuaded that our own idea is merely “realistic” and that my case is an exception to the usual platitudes we espouse.
New Hampshire’s workers compensation rates are higher than average. Although in recent years we are one of only sixteen states that have seen our rates decline, they started out above average. Because of certain rules, the health care component of workers compensation has few competitive features.
Now comes the giant abandonment of principle that turns erstwhile conservatives and libertarians into reluctant statists embracing big government solutions.
The current system which requires employers or insurers to pay whatever charge is presented to them by whatever medical provider the injured worker chooses is rightly decried as anti-market. Legislative supporters of a pseudo-reform bill seek not to fix the competitive failure but instead to have the insurance department set up a schedule of “reasonable charges.” Their supposed past support of competition and angst at market failure has nonetheless driven them headlong into a scheme of government set and managed price controls.
Supporters argue quite nonsensically that their price setting isn’t a “fee schedule.” It is merely a calculation of the reasonable charge where the maximum charge the government permits is set as the average (which under basic math means the average and maximum are necessarily identical). The government (in this case the department of insurance) will set a price (reasonable charge) but we are told that this isn’t a price control. George Orwell call your office.
What I find most distressing is that so many tentative supporters of the price control scheme argue sincerely that their price control is better than other price controls because they use a different and perhaps better set of numbers to create their price.
Under this logic we are expected to endorse government control if the calculation is better. These legislators then must object to Obamacare simply because the right administrators have not been selected. Under their logic a single payer would be best if we let the author of the workers compensation pseudo-reform administer the system.
Of course now I’m being silly but that’s precisely how silly this headlong dive into government price controls really is.
The sad part of this debate is that the problem is understood and the solutions readily available.
The biggest problem is the first line of the workers compensation law requiring the insurer to pay the entire bill of whatever provider the employee selects no matter what unless the insurer can show just cause. This eliminates fraud and little else. It forces costs higher leaving the payer of the bill (employer or its agent) with no negotiating power.
Instead of forcing the employer to prove just cause, shift the burden to the provider and thereby change the negotiation. Or allow the employer and insurer to establish in and out of network pricing to pressure cost outliers.
In short, government set and managed price controls are not the only answer. Competition can easily be introduced to the system.
We faced this with state employees. The ability to go anywhere coupled with little or no exposure to price drive costs high. But the legislature never considered mandating a list of prices for the 80 or 90 most common or costly procedures. Instead, they created incentives in their own contract for consumers to receive a cash reward for using, if they chose, a low cost provider. My own health insurance has a similar competition-inducing mechanism and they are becoming more common throughout health care.
I don’t understand the number of conservatives who prefer price controls of one variety or another to trying to introduce competition. Saying the system isn’t free market so we must introduce government set pricing is quite different from the saying the system is not free market so let’s eliminate the anti- competitive language. Price controls are the same thing as giving up.