Should insurance prices be capped?
This February, Governor Deval Patrick announced that health insurance companies would be required to submit proposed price increases to the Insurance Commissioner 30 days in advance of taking effect. Last month, the Commissioner, Joseph Murphy, rejected 235 of the 274 price increases that insurance companies proposed. Six companies – Blue Cross Blue Shield, Harvard Pilgrim, Tufts Health Plan, Fallon Community Health Plan, Health New England, and Neighborhood Health Plan – are suing the Commissioner, claiming that they will be forced to operate at a loss if they are not allowed to increase their prices as planned. A hearing took place on Thursday in Suffolk County Superior Court, with the six companies seeking an injunction against the state to allow them to raise their prices.
I think both sides have good points. I am all for price ceilings on goods with inelastic demand – necessities that people are going to buy no matter what the cost. I believe that allowing companies to charge whatever they want for necessities such as medical services amounts to extortion. If someone needs a medical product or service to live, then they don’t exactly have a choice about whether to buy it, so the transaction is not voluntary like most transactions in an unregulated market, but actually qualifies as coercive. For this reason, I believe that the government has a right (and if prices are really ridiculous as they are with health services, even an obligation) to set and enforce price ceilings on goods with inelastic demand.
But the insurance companies sure had a point when they argued that they themselves don’t have much control over the cost of health services. The exorbitant cost of health insurance is caused primarily by the prices that doctors and hospitals charge. It is doctors and hospitals, the underlying cause of health insurance prices, who should be subjected to price ceilings.
I am no fan of Patrick, but I appreciate that he is finally trying to do something about the ridiculous cost of medical services. Price ceilings are something that, unfortunately, few politicians have considered as a solution to this problem. I salute Patrick’s willingness to try something that resembles price ceilings; I just wish he would focus on doctors and hospitals, who are the real cause of the problem, instead of insurance companies.