How to save healthcare from the Obama legacy

Price controls are a curiosity in economics. The immediate reaction to them seems perfectly sensible: If many people can’t afford product Y at price X, then the government must intervene to help.

Because nudging the equilibrium price met by supply and demand will just automatically work out perfectly, right?

Well, if you’re reading this, then the answer — you’ve probably already guessed — is “no.” Price controls (also sometimes called “price ceilings” in economics) don’t magically ensure that everyone gets everything all the time.

{mosads}At best, price controls force people to wait for what they need — think of gas lines in the 1970s. At worst, by depriving producers of appropriate incentives, price controls can contribute to the shortage of product Y — because it’s no longer valuable to provide it.

Most people will concede the above point when you’re discussing market forces generically, regardless of their politics. But when you start talking about the economics of, say, healthcare — where people’s lives are genuinely on the line — sometimes the theory makes people uncomfortable.

Modern healthcare is a tricky economic maze. It doesn’t follow standard consumer trends, like buying a new cell phone, because the patient frequently isn’t the consumer: rather, the third-party payer is.

So applying market principles to help cut through the maze is difficult but rewarding and — ultimately — necessary for saving money and lives in the long run.

Medicare Part D: The right prescription

An example of this is Medicare Part D. A hallmark achievement of the George W. Bush administration under the Medicare Modernization Act of 2003, Part D is a successful program that employs free-market principles while expanding medical access.

It created a prescription drug benefit to help beneficiaries pay for prescription drugs, with a focus on preventive care. If you get the drugs you need in time, you’re less likely to get sick. It reduces both cost and suffering: The government doesn’t have to pay for more expensive care later because seniors and others are staying healthier.

Moreover, Part D offers more and better choices. Beneficiaries get to choose from a list of private plans and find what serves them — and plan providers are competing for beneficiaries’ business rather than inheriting a virtual monopoly where they can charge whatever they want. So beneficiaries can save more while getting coverage

In 2013, political consultant Doug Schoen described Part D as “the most cost-effective and successful entitlement program the federal government runs,” noting that it had saved $7 billion (about $1,000 per Medicare recipient) and that its deductible was actually dropping.

Despite that, President Obama and Health and Human Services Secretary (HHS) Sylvia Burwell have pushed for price controls on Medicare Part D despite insistence from the Congressional Budget Office (CBO) that price controls wouldn’t result in any savings.

Sadly, this attitude is all too common in the Obama administration’s approach to healthcare, as evidenced by programs like the Center for Medicare and Medicaid Innovation (CMMI) and the Independent Payment Advisory Board (IPAB).

CMMI and IPAB: The wrong medicine

(Note: I am about to criticize the Obama administration’s healthcare policy. It is only because I am a moustache-twirling goblin who sells poison milk to school children — otherwise, how else could I oppose someone who fights for “free” healthcare?)

CMMI was designed to enjoy unrestricted, unchecked power. It’s not accountable to Congress, or even the president. The goal of its “independence” is the Orwellian mandate to “overcome antireform inertia” — it conducts “pilot studies” to search for cost savings — which is a good goal — but it’s granted authority to waive almost any part of current Medicare law, which is bad.

Then, if the CMMI rates its own study as a success, it can force all of Medicare to adopt whatever it was testing — which is very bad. (I discussed CMMI at length here.)

IPAB is likewise a board of unelected, unaccountable bureaucrats with the power to deny care by unilaterally choosing what will get paid for and what won’t. If it deems that something is too expensive, it can force a price control on it. The board is explicitly forbidden from any recommendation that includes healthcare rationing, but it can force actions that result in rationing.

American Medical Association President Jeremy Lazarus blasted the IPAB in this statement:

“This new, arbitrary system is not what we need when patients and physicians are already struggling with a looming cut of nearly 30% from the broken Medicare physician payment formula. … Ending the ongoing threat of drastic cuts from the physician payment formula and preventing new cuts from IPAB are important first steps to stabilize the Medicare system for patients.”

And amidst all of this, IPAB isn’t even expected to save Medicare any money. The CBO’s projected rates of spending growth eclipse saving rates: “under current law, the IPAB mechanism will not affect Medicare spending during the 2011-2021 period.” (It’s tucked away in a PDF here.)

IPAB and CMMI are ObamaCare provisions that should be dismantled while Medicare Part D must be protected.

Federal healthcare spending is a complicated bureaucratic labyrinth. Navigating it requires conservative principles that reduce public healthcare costs, while keeping the realistic benefits we’ve promised as a society.

While obviously the government has a role to play, that role needs to be managed effectively — not hijacked by bureaucrats who allow out-of-control spending in the name of “free” healthcare.

The best person to lead us through this maze is Rep. Tom Price (R-Ga.), the next HHS secretary. Medicare and similar programs need all the help they can get — and Dr. Price, who sits at the nexus of medical, policy and budget experience, is the person to do it.

That is the price control we need in Washington.

Jared Whitley is an award-winning journalist and columnist. He has worked for Sen. Orrin Hatch (R-Utah), the George W. Bush White House and the defense industry.

The views expressed by contributors are their own and not the views of The Hill.