Both the Right and Left Go Wrong on Healthcare Prices

Despite the fact that prices in healthcare do not play the same role as they do in other markets, there is a tendency on both the political right and the political left to ignore this fact.

The right, for example, issues frequent calls to make prices transparent. A number of proposals would even require doctors and hospitals to post their prices. Doctors find these proposals perplexing because they know that there are no prices at a typical physician’s office. There are only different payment­ rates. What possibly could be gained by posting these rates on the wall? If you are a BlueCross patient, how does knowing what an Aetna patient is paying help you in any way?

On the left, a common view is that health costs are too high because health-care prices are too high. They believe that the way to control costs is to push prices down. This idea is actually written into the Affordable Care Act. All kinds of efficiency ideas are included in the new law, but when all else fails—and most knowledgeable people believe that all else will fail—ACA will try to solve the problem of rising Medicare costs by squeezing the providers. Medicare’s chief actuary predicts that by the end of the decade, Medicare fees for doctors and hospitals will be lower than Medicaid’s.[1] And it may not end there. At least one organization advocates imposing Medicare-type price controls on the entire healthcare system.[2]

The problem with this way of thinking is that prices in healthcare are symptoms of problems, not causes of problems, in the same way that a high body temperature is a symptom of a fever. Just as it would make no sense to try to treat a fever by lowering the body’s temperature, it makes no sense to try to control prices while ignoring why they are what they are. Plus, when we treat symptoms rather than their causes, there are inevitably unanticipated negative consequences. For example, if we tried to impose low fees on every provider for all patients, we would begin to drive the most capable doctors out of the system—into alternative pay-cash-for-care services and perhaps even out of healthcare altogether.

But there is an even more fundamental problem with trying to solve the problem of cost by suppressing prices. The suppression of provider payments is an attempt to shift costs from patients and taxpayers to providers. Even if we get away with it, shifting­ costs is not the same thing as controlling­ costs. Doctors are just as much a part of society as patients. Shifting cost from one group to the other makes one group better off and the other worse off. It does not lower the cost of healthcare for society as a whole, however.

Finally, both the right and the left—but especially the left—too often assume that the ideal price of care for low-income patients is zero. After all, if price is a deterrent to care, doesn’t it follow that you maximize access by making healthcare free at the point of consumption? Not necessarily. I will explain why in my next blog post. Until then, please see my Independent Institute book, Priceless: Curing the Healthcare Crisis.

Notes:

1. John D. Shatto and M. Kent Clemens, “Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers,” Centers for Medicare & Medicaid Services, US Department Of Health & Human Services, August 5, 2010, https://www.cms.gov/ReportsTrustFunds/downloads/2010TRAlternativeScenario.pdf#page=7.

2. Michael Ettlinger, Michael Linden, and Seth Hanlon, “Budgeting for Growth and Prosperity: A Long-Term Plan to Balance the Budget, Grow the Economy and Strengthen the Middle Class,” in The ­Solutions ­Initiative, Peter G. Peterson Foundation, Washington, DC, May 2011, 40–47, http://www.pgpf.org/Issues/Fiscal-Outlook/2011/01/20/~/media/4595173EB72C47EF9E8E85DE680A22B0.ashx.