Sunday, March 27, 2011

How Not to Lower Health Care Costs

In an fascinating sleight of hand, Governor Shumlin and the Vermont Democrats have now changed their emphasis from promoting health care “reform” as universal access to health care (we already have it) or universal health insurance coverage (93% of Vermonters are already covered) to claiming health care “reform” is a way to contain health care costs. Gov. Shumlin’s recent reaction to the House passed Health Care “Reform” (H-202) reveals this change in emphasis. Governor Shumlin bragged H-202 was the “…beginning of a plan …that spends less money, makes Vermonters healthier, gets rid of the waste and bureaucracy in the system, and allows us to deliver quality health care to all Vermonters at an affordable price."

This is pure nonsense. The empirical evidence is incontrovertible. In every single economic sector where government has tried to regulate costs, costs have skyrocketed. And in every sector where government has abandoned its regulatory effort to control costs, costs have declined, often dramatically.

Remember the Interstate Commerce Commission? Established in the 1880’s, its purpose was to control costs in the trucking and rail industries. When the commission was scrapped by the Motor Carrier Act of 1980, trucking and rail costs plummeted, resulting in lower costs in every other economic sector that was dependent on rail and truck deliveries.

Similarly, the Civil Aeronautics Board regulated the cost of airline tickets. When the Airline Deregulation Act was passed under President Carter in 1978, plane fares were cut dramatically, and the American public took to the air in unprecedented numbers.

The Federal Communications Commission regulated the telephone monopoly, AT & T (“Ma Bell”). The Commission, far from representing consumers, protected Ma from anyone who tried to improve telecommunications service. For example, in 1957, a young entrepreneur tried to obtain permission from the FCC to market a product called a “Hush –A-Phone” a plastic device that made phone calls more private. With AT & T opposing the device, the FCC would not allow it to be marketed. It wasn’t until Ma Bell was broken up and the telephone industry de-regulated that rates went down dramatically, and as a result of competition, telecommunications technology took off. Today the quality and variety of telecommunications bears no resemblance to Ma Bell and her black rotary phones.

In each industry, labor and management opposed deregulation. Why? Because they both had a cozy relationship with regulators, and they preferred to retain that relationship rather than risk competition with customers they could not control. It is much easier to hire lobbyists and lawyers whose job it is to get to know the regulators and their staff and to persuade those regulators that proposed price hikes and stifling any competition both benefit the public.

Health care “reform” panels will not contain costs. The health care panel will end up operating like any government commission formed to control costs, no matter what their good intentions. The “experts” with whom the panel will deal will be from those sectors which are regulated. The public will not have an adequate voice in the process. The result will be higher costs, lack of innovation and lower quality health care.

What has been proven to lower costs and increase quality? The deregulation of airlines, trucking, rail and telecommunications provides the answer. Competition will lower the cost of health care and enhance the quality of health care. The Vermont legislature should be providing incentives for competition, like my earlier proposal, rather than trying to regulate costs with a system which has repeatedly been proven a failure.


  1. Excellent points. I'm going to "share".

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  3. But, but, but..."Health Care is a Human Right!"

    A plan to be developed that has not been analyzed for cost, funding and quality but with unlimited demand can only be controlled by establishing a global budget. That means the unlimited demand is constrained via rationing. How can it be otherwise?

    ShummyCare can be touted with many warm and fuzzy words, but when peeled back, rationing is the only way to control costs.

  4. Thanks for the comments. We enjoy hearing from everyone. Much of the information for this article came from "The Competition Solution", an excellent and eminently readable small book by Paul A. London, an economist from the Clinton administration. I recommend it highly.