Avoiding the Price Control Trap

Let’s begin with a couple of basic truths.

First, that government-imposed price controls are antithetical to genuine, consumer-focused health reform.  The only way to achievable sustainable reform that improves health outcomes and contains cost is through medical innovation, developing new treatments, technologies and medications to keep people healthier and making healthcare more cost-effective.

The second truth is that the health reform process taking place right now will not follow a simple linear path.  Regulators and lawmakers will face a number of forks in the road and will have to make decisions that will determine the ultimate course of reform and the way patients and health providers will be affected.

With those premises in mind, it’s becoming increasingly clear that health reform at the national level must avoid some of the paths being taken by the state of Massachusetts.

A Wall Street Journal op-ed piece this week by Joseph Rago points out that while the Bay State has succeeded in its goal of achieving an insured populations (not counting those who are gaming the system by buying insurance, keeping it long enough to avoid state penalities, and then dumping it), cost containment has not been accomplished.  Consequently, state politicians are trying to force costs down through government controls.

Governor Deval Patrick’s insurance commissioner has rejected the vast majority of requested premium increases submitted by state insurers.  These increases are deemed necessary to cover expected claims, with health costs rising at eight percent annually.  With these artificial price caps in place, insurers are essentially being forced to sell their products at a financial loss.

A state appeals board has reversed many of these price controls, saying they ignored “economic realities” –  “economic realities” being the fact that three major insurers are now under administrative oversight because of concerns about their financial viability.

And now, the governor wants to extend this rate review process to cover hospitals and physician groups, which could effectively impose the same price controls on providers that are currently undermining health insurers.  Also, as Rago points out, the state is using its “determination of need” process to restrict the use of certain medical technologies.

At a time when our population needs improved access to insurance, a growing supply of healthcare providers and medical innovation that can achieve long-term quality improvements and cost reductions, government price controls take us farther away from all of those goals.

What we’re learning from the Massachusetts experience is that there are certain roads that deserve to be less traveled.