Friday, September 04, 2009

Looking for bargains in all the wrong places

John Goodman's NCPA Health Policy Blog examines a scenario that looks good at first glance, but not so good later on.

Price controls for restaurants. Suppose there were a law requiring every restaurant to charge you half-price for everything you eat? Initially you might revel in your good fortune. Then reality would set in.

Soon you would find the wait to get a table growing longer and longer. Once seated, you would observe you are the last person in the room to be served. The bread in your bread basket would appear staler than at other tables. The vegetables less fresh. The meat a bit moldy. I could go on, but this is a family publication.

There is only one equilibrium in this scenario: quality would deteriorate until the cost of your meals were equal to the half-price fare you are paying.

Before long you would begin to realize this law is doing you no favors. Eventually, you would seek the law's repeal. You would relish the right to be able to pay market prices so that restaurants would compete to satisfy your needs.

Price controls for health insurance. Now if you agree with my analysis for restaurants, why would you expect health care to be any different?

For the Obama Administration the raison d'être for health care reform has morphed into the goal of charging people with pre-existing conditions the same premium that is charged to the healthy. I have written before about everything that goes wrong when entry-level premiums do not reflect expected health care costs. The new thought today is that price controls harm the very people they are designed to help.

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