Obama Threatens Price Controls on Medical Insurance

Published: Thu 24 Jun 2010

Donald Chase

Tuesday, President Barack Obama admonished health insurers not to raise their rates, warning "we'll be watching closely." The threat comes in the wake of a string of rate hikes health insurers have been compelled to make, in part because of the additional expenses associated with Obama's health care reform legislation.

Obama's threat is hauntingly reminiscent of the price controls Richard Nixon enacted to curtail inflation and restore economic stability to America. We all know how that strategy turned out-ten years of stagflation and senseless artificial shortages. Still, four decades later, Obama stands poised to apply the same misguided strategy to health care.

The Consequences of Government Interference

The health insurance price control scheme has already been attempted by the state of Massachusetts, and insurers are going out of business left and right as a result. Overreaching government officials try to help the American people by imposing arbitrary controls on health insurance premiums, and the consequence is the exact opposite-fewer choices and lower-quality care.

Politicians justify their hands-on approach by vilifying health insurers as money-grubbing, heartless fat cats, when in reality, the medical insurance industry is an alarmingly low-profit-margin sector. Over the last ten years, health insurers have experienced profit margins of two to six percent, contrasted with the comparatively outrageous 16.4-percent average profit margins of big pharmaceutical companies. Health insurers aren't the villains here; the overzealous politicians who attempt to stay the invisible hand of the free market, however, are.

Lessons from History

In the seventies, price controls invariably caused calamities-lines for gas, shortages of meat, and a litany of other problems directly related to unnecessary government interference. President Nixon justified his meddling with the same reasons Obama cites-wicked corporations, avaricious profiteering, and incendiary class-warfare propaganda. The times have changed, but the results will not.

If the government limits prices to the extent that health insurers cannot pay for the cost of the services they provide, the insurers will fold, and the ensuing shortages will ratchet up the true cost of health care. In the 1970s, the price of gasoline remained constant thanks to government controls, but Americans had to wait for hours to fill up-an opportunity cost that far outweighed the price hike that would have come without Nixon's meddling. The bottom line is this: the country cannot evade true cost by toying with prices--a lesson the country and President Nixon learned the hard way 40 years ago, and one President Obama has apparently forgotten.