Obama, health care, and price controls

Just days before the White House health care summit with Republican members of Congress, President Obama has released a health care plan that, according to the Wall Street Journal, “take[s] the worst of both the House and Senate bills and combine[s] them into something more destructive.”

The bill attempts to control health insurance premiums by allowing a federal board to fix prices.  When have price controls ever accomplished anything other than shortages?

Currently, insurance commissioners in each state are responsible for monitoring premiums and overseeing increases.  They are concerned not only with the premiums charged, but also with ensuring the actuarial soundness of the companies themselves.  Because of this, they must weigh the desires of the public for low cost with the realities of the insurance business and real-world expenses.

Once the federal government is charged with the task of simply holding down insurance premiums without any mechanisms put in place to reduce medical costs themselves, an artificial element is added to the market which can only end in disaster akin to the recent bursting of the housing bubble.  To ignore the one issue that could actually solve the problem of rapidly escalating insurance premiums and is, according to our president, one of the goals of health care reform, is simply silly.

Insurance companies will not stay in business if they’re not allowed to bring in enough money to cover their costs and make a profit.  If they’re unable to raise rates while the cost of covering claims continues to increase, insurance company bankruptcies will become an epidemic.

Of course, for some this will be viewed as political victory, proof that the free market is unable to equitably balance the needs of all the players in the health care arena.  For those who understand economics 101, it is simply further proof that our government officials may be looking out for something other than our best interest.

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