This opinion editorial first appeared in The Tampa Tribuneon December 8, 2015.
More than 50 years ago, our Cold War opponents provided all the evidence needed that government price controls were bad policy. It was called the Trabant.
The socialist government of East Germany decided to set the standard issue vehicle’s price at the equivalent of just a few hundred dollars. Such affordability was great for consumers — as long as they didn’t mind waiting the better part of two decades to claim a poorly made, unreliable car.
The moral of the story: When government dictates prices instead of letting market participants work out deals for themselves, consumers suffer.
Sadly, we don’t seem to be learning the lesson of basic economics.
Unwilling to stop at Obamacare’s takeover of Americans’ health insurance, Washington elites are now seeking to control which medicines citizens can take. The planned bureaucratic makeover of Medicare’s prescription drug benefit program could deprive nearly 3 million older Floridians of vital medicine.
Gutting the program’s market-based competition in favor of making the federal government the chief arbiter of Medicare prescription drug prices will result in rationed care that seriously undermines seniors’ health.
Government price controls distort more than just auto markets. Minimum wage mandates prevent employers from creating certain jobs. Rent controls stop potential landlords from putting their houses and apartments on the market. Price caps on electricity resulted in widespread blackouts in California in the early 2000s.
Price controls have a solid record of never working. Some presidential candidates and Congressional members aren’t letting facts get in the way of vote-winning campaign promises to lower prescription costs. They want the government to “negotiate” prices directly with drug makers.
Of course, the government doesn’t actually negotiate. It sets a price that it’s willing to pay and doesn’t budge.
The consequences are completely predictable. Price controls in the VA health system already prevent dozens of medicines from being offered to beneficiaries.
If such de facto price controls are applied in Medicare’s drug benefit, America’s seniors won’t be able to buy certain medicines.
In today’s Medicare drug benefit, known as Part D, private insurance companies negotiate with drug makers for discounts in exchange for including their medicines in coverage plans. Insurers want to hold down costs and offer more variety to make their plans more attractive to Medicare enrollees. Drug makers want to sell their wares to seniors via the insurance plans. The incentives are right for the buyers and sellers to reach agreement on the lowest price that the manufacturer can afford while earning a return on investment.
Axing such market-based competition in favor of a one-size-fits-all approach will eliminate many of the differences between insurance plans. As a result, insurers will have less incentive to diversify their plans in a bid to undercut their competitors on price. Less competition will lead to premium increases — the exact opposite of the campaign promises to make healthcare more affordable.
Government price controls invariably lead to shortages and fewer products offered for sale. Competition is the secret sauce that makes markets, including prescription drug markets, work.
A federal takeover of pricing, by contrast, is a recipe for disaster.