Price Controls

While I was at West Point, 1960-1964, the Department of Social Sciences was headed by a former OSS general named George Lincoln. He was well regarded in academic circles but his students weren't so impressed. We called him Ether Lips. He could put you to sleep introducing a guest speaker.

Now faded into obscurity, General Lincoln came into political prominence in the Nixon Administration as head of the Office of Emergency Preparedness. The United States was experiencing raging inflation that peaked at well over 8%. President Nixon decided to combat it with wage and price controls. General Lincoln was to implement them.

I had an acute personal interest. After two tours in Vietnam I had two years earlier decided to leave the Army. It had been a difficult choice, not least because I loved the Army. The career change came with a substantial pay cut but I had been confident I could quickly make it up. It was important because I had a young, demanding, and growing family, a family I absolutely adored.

To put it mildly I was in need of regular salary increases and was working as hard as I knew how to earn them. When the wage freeze went into effect they stopped. Fortunately for us the effect was short term. The controls were a dismal failure and were quickly abandoned.

The lesson was there for all to learn. Wage and price controls don't work. But some folks never learn. Congress has been trying for years to hold down Medicare and Medicaid costs with exactly that, wage controls if you are the doctor, price controls if you are the payor. They aren't working any better now than they did for General Lincoln.

Medicare requires an annual "doc fix" to raise payment rates so doctors won't abandon the system in droves. My own doctor worries about it every year. Without the fix he would be quickly forced out of business.

Medicaid has been allowed to drift into dysfunction, with payment rates so low few doctors will accept it. Many of those who do focus on volume at the expense of quality. Some studies show that medical outcomes are often better for patients who have no insurance and can't pay. Some doctors will not accept Medicaid but will accept a limited number of indigent patients and give them the same standard of care as if they had insurance.

Obamacare proposes to raise Medicaid payment rates to Medicare Levels for two years, then gradually force down rates in both programs. The theory seems to be that with expanded eligibility, there will be enough constituents on Medicaid to force congress to include it in the yearly doc fix. It isn't clear exactly how the new health care exchanges will work but something like that seems to be the plan there too.

We have a lot of people in this country who need health insurance and don't have it. More than a few are one major illness from penury. Many wait until they are sick or injured and go to the emergency room, often needing costly hospitalization that might have been avoided. Too many of us are poorly served by the current system.

But price controls aren't the answer. Several states have implemented variations on Medicaid that seen to show promise. Florida is one. These require federal waivers but should be encouraged and allowed to continue. Some politicians have proposed premium support plans, subsidies for private insurance that would allow consumers to shop for plans that work best for them. These deserve a better hearing.

We have a crisis on our hands that rivals anything George Lincoln ever faced, in both seriousness and complexity. A federally imposed solution wasn't up to the task then and it isn't now. We need to rethink this.