Central Planning Won't Fix Health Care

What the United States can learn from Venezuela's political and economic failures

The New York Times recently ran a devastating indictment of health-care reform and Washington's approach to it. The article didn't put it that way, naturally. In fact, it didn't even mention the Patient Protection and Affordable Care Act. But the story, as they say, resonated.

The piece concerned shortages of essential goods in Venezuela, and the causes behind them. "President Hugo Chavez's … government … imposes strict price controls that are intended to make a range of foods and other goods more affordable for the poor," the article reported. But those "are often the very products that are the hardest to find." The front-pager went on to quote Venezuelans venting their frustration as they stood in line for basics such as milk and toilet paper.

"Venezuela was long one of the most prosperous countries in the region, with sophisticated manufacturing, vibrant agriculture and strong businesses," the story continued. "But amid the prosperity, the gap between rich and poor was extreme, a problem that Mr. Chávez and his ministers say they are trying to eliminate."

Sound familiar?

"They blame unfettered capitalism for the country's economic ills." Does that sound like any other administrations you know of? Maybe ones that start with O and rhyme with llama?

"They say companies cause shortages on purpose, holding products off the market to push up prices." Gosh, where have we heard that before? Oh, yes—in this October CNN report, "Obama Tackles Drug Shortages, Prices": "The Justice Department will be tasked with examining whether specific drug shortages are tied to an intentional stockpiling of medications designed to raise prices."

In fact, some of those drug shortages are caused at least in part by (you guessed it) price controls. We have this on the authority of none other than Ezekiel Emanuel—former Obama adviser, brother of Rahm, and alleged (but not actual) supporter of "death panels." As Emanuel explains, a 2003 prescription-drug law has had an "unintended consequence … . [A] drug's price should be able to increase … to attract more manufacturers. Because the 2003 act effectively limits drug price increases, it prevents this from happening. The low profit margins mean that manufacturers face a hard choice: lose money producing a lifesaving drug or switch limited production capacity to a more lucrative drug."

That description sounds just like the Times report from Venezuela, where "prices are set so low, [economists] say, that companies and producers cannot make a profit. So farmers grow less food, manufacturers cut back production and retailers stock less inventory."

What does this have to do with health-care reform? Well, among its manifold other provisions, the law imposes price controls—albeit indirectly.

First, it sets a "medical loss ratio" (MLR) for insurance companies. That's a fancy way of saying insurers must spend at least 85 percent of their revenue paying claims (or 80 percent for smaller companies). Profits, sales commissions, and administrative costs cannot exceed 15 (or 20) percent. If an insurance company exceeds the acceptable loss ratio, then it must rebate the overage to consumers. Insurance brokers are taking a hit on commissions and, Investor's Business Daily reports, "some health insurers are dropping out of the individual market completely, while others are cutting back." The newspaper also notes that while paying fraudulent claims would count toward an insurer's MLR, anti-fraud software would go on the administrative-cost side of the ledger.

Second, health insurers are not allowed to raise premiums by more than 10 percent without government permission. Ostensibly, states do the reviewing—but HHS looks over their shoulder and takes control if the feds think the states aren't doing the job well. If an insurer raises rates beyond what HHS considers "reasonable"—whatever that means—it could be banned from the state exchanges. This, says Forbes, creates "a de facto environment of federal authority over rate increases."

Now step back from the trees to look at the forest. Health-care reform forbids insurers to turn anyone down because of a pre-existing condition, and—if it survives Supreme Court review—will add millions to the rolls. It also imposes a series of expensive mandates that will drive up costs. At the same time, it seeks to keep insurers from adjusting to the new realities by raising prices too much. Where will all that lead?

The historical evidence is not encouraging. In addition to Venezuela, one could cite New York City, where rent control has created a permanent housing shortage; or Zimbabwe ("Zimbabwe is facing serious food shortages due to price controls imposed earlier this month by the government," BBC) or Russia ("Price Controls on Gasoline in Russia Causing Shortages," Economic Policy Journal), or dozens of other examples.

To be fair, the effects of health-care reform will not be nearly so drastic as the effect of the price controls imposed by Hugo Chavez or Robert Mugabe. But how big a selling point is that? "America—Still Not as Bad Off as Venezuela!"

Not the most inspiring slogan, is it?

A. Barton Hinkle is a columnist at the Richmond Times-Dispatch, where this article originally appeared.

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  • wareagle||

    state control is only wrong when other countries do it. America's statists are moar smarter than other leftists.

  • anon||

    That's right. Venezuela just doesn't have the right Top Men in charge.

  • The Derider||

    Switzerland does. They've got government controlled healthcare and the best healthcare outcomes in the world.

  • cbmclean||

    This is a fair question. What does orthodox Libertarian theory say about the fact that the centralized govt managed health care systems in small rich European countries like Switzerland and Scandinavia at least seem to work? That it's an illusion and they don't really work? That can work for a limited time but is unsustainable over multiple generations? That it can only work with small populations?

  • newshutz||

    Switzerland has more economic freedom than the US does. A market economy can support some socialism.

    Switzerland's insurance mandate allows for high deductible plans.

    The required insurance is very basic coverage.

  • KDN||

    It'll be different here. We put a man on the moon!

    A man! On the Moon!

  • anon||

    [Newt Gingrich]

    And soon a base!

  • Rich||

    [Hugo Chavez]

    And all your bases are belong to us!

  • Arf?||

    [Max]

    ARFARFARFARFARFARFARFARF!!!!!

  • Cioara||

    Instead of trying to force private insurers to provide a public service, it should be called what it is. Medical care for the uninsured should be provided through a general tax and care for chronic and life-threatening illnesses should be provided by a government-run VA clone. The important thing about this is that insurance companies and hospitals must have the right to transfer the non-insured to government care if the case is chronic and life-threatening.

    Then if people don't like the care they are getting which will be similar to the NHS in England, they can buy their own insurance, which will now cost much less because there won't be high-digit uninsured added into their bills. I also wrote about this on my own website, you can check it out if you are interested.

    Anyway, the alternative may be Obamacare, which will ultimately put everyone into a NHS system which will result in inferior care for everyone.

  • wareagle||

    Medical care for the uninsured should be provided through a general tax

    to a large degree, that already happens. It is called Medicaid.

  • ||

    Medical care for the uninsured should be provided through a general tax

    No, Medical care for the uninsured should be provided through those uninsured choosing to budget so they can purchase medical services, if that is their priority, or through voluntary charity.

    No need for government.

  • James Anderson Merritt||

    I completely agree with you, but the government also must loosen or eliminate regulations that artificially restrict the supply of providers, drugs, and devices. Competition and innovation must be allowed to work in health care as they work in other industries. That will bring prices and fees down to the point where most people could budget for health care as they budget for food, clothing, utilities, transportation, etc. And it would help the charitable dollar to go farther in treating those who are too poor to budget for anything. "Insurance" or "Group Plans" must not be the gatekeepers through which people access health care. They should be tools in one's box, but not by any means as important and central to the system as they are today (of course, through government action and special treatment).

  • BakedPenguin||

    I've thought about something like this. Get doctors and nurses who want immigration visas (if there are any left) and use them to staff public hospitals.

  • KDN||

    I'm fine with the idea of a parallel single-provider option supplementing an actual free market in health care (as opposed to the corporatist single-payer by proxy setup we have today). It's probably the most realistic way to get a libertarian system put in place and the sure to be terrible management of a US Federal Health System can provide its own incentive for most people to try to avoid it.

  • BakedPenguin||

    That's actually pretty much what I was thinking.

  • Old Mexican||

    What the United States can learn from Venezuela's political and economic failures[.]


    First, don't vote for a charismatic and sweet-talking mountebank that promises to unite everyone and solve all of our problems through his generous hand.

    Uh... Too late!

  • jacob the barbarian||

    yup. We fucked that one up a whole bunch of times already. JFK-Carter-Clinton-GW-BHK. The trouble did not start four years ago. It started a long time before JFK. Obummer is the just the most recent incarnation.

  • anon||

    Ah fuck.

    http://www.cnn.com/2012/05/01/.....?hpt=hp_t2

    So, now we're going to have to get x-rays to board a fucking plane?

    Also: My last visit to the airport eerily reminded me of 1984.

  • anon||

    Woops, finished reading the article. They're just advocating full cavity searches, not x-rays.

  • wareagle||

    because nothing screams security louder than a staff whose last job included such mind-bending questions as "you want fries with that?"

  • ||

    I think we need us some Iron Laws for statists. Such as...

    Results don't matter. Intentions do.

  • Arf?||

    You're too hung up on intentions, man. It's all about feelings.

  • The Derider||

    Switzerland has an individual mandate for health insurance and their healthcare system is significantly better than ours.

    But don't pay attention to the results. Mah Rahts!!!

  • James Anderson Merritt||

    Switzerland also has a mandate for every householder to keep a serious firearm. I think that both mandates are equally as causally responsible for the quality of the Swiss health care system. That is to say, not at all.

  • ||

    "What the United States can learn from Venezuela's political and economic failures"

    Havent several of president urkel's acolytes been singing the praises of chavez? They love the guy precisely because of what he has done. They dont see the results that the people have received as a failure, they see the results chavez has received in terms of increased power as a success. They think chavez is great. What they can learn from him is how to replicate his methods here, and we have been seeing watered down versions of them all along from this administration. Ok, maybe 'fast and furious' wasnt so watered down....

  • albo||

    America already has, what, 90 million people on european-style government single-payer medical insurance (medicare, medicaid, chip, vets, etc) that's breaking the bank.

    So the example is there, plain as day and twice as stinky. But instead of learning from it, we're doubling down with Obamacare.

    We're dumber than a bag of hair and make decisions as carefully as a drunken British shopgirl.

  • ||

    That is how govt operates....figure out what you are doing wrong and then double down on it. Look at the history of their attempt to regulate the housing market....jesus you would think it was done by a gaggle of pot smoking chimpanzees.

  • Gilbert Martin||

    But, but as we are constantly told by the leftists, healthcare is DIFFERENT and SPECIAL.

    The market process just doesn't work for healthcare because of being DIFFERENT and SPECIAL.

    How do we know it's DIFFERENT and SPECIAL. Because the leftists have told us so.

    Of the course the only reason for that is the decidedly non-market notion that they dreamed up about it being a "right" regardless of ability to pay.

  • James Anderson Merritt||

    I find a lot of overlap between transportation and health care. A lot of both can be elective in nature, and some of both can be due to emergency. Highly trained, highly paid employees are providers of both, and expensive apparatus or products are involved in the provision of both. The competition and innovation that serve to push quality up and prices down in elective cases also lead to an environment in which quality is increased and costs reduced for the emergency cases, too. I also note that the more either sector is regulated, the higher prices go and the more likely we are to suffer shortages. Conversely, when market forces are allowed to work, transportation prices tend to go down, and the consumer's situation improves. Given the impressively congruent example of transportation, I cannot imagine that health care is so "different" that the same would not be true for that sector.

  • C. S. P. Schofield||

    "What the United States can learn from Venezuela's political and economic failures"

    Nothing. Not until the idiots still teaching that Socialism is a respectable ideology are treated as if they were geology teachers trying to defend the old "Hollow Earth" theory, and booted out the door.

  • ZippoTing||

    OK wow, so who comes up with all that stuff??

    www.Deep-Web.tk

  • ant1sthenes||

    So, would it be possible for insurers to charge a commission to doctors for service (allowing doctors to raise fees charged to compensate)?

    That is, if a procedure costs $100, let the doctor charge $110, but take a $10 commission. Your actual revenue is the same, but the extra you pay the doctor helps MLR, and the commission isn't from premiums, so it shouldn't count in that regard.

    Is this a valid loophole, or are there regs that would prevent this?

  • SusanM||

    Mr. Hinkle, the dead horse has been beaten enough don't you think? I'm no more enough of an Obamacare supporter than anyone here but really. The every-other-day article stating that it wouldn't work and you wouldn't agree to it even if it did has really gotten old.

    Why not give that lovely ex-VJ Kennedy some space to write about the rise of militarism in the Middle East ("It blows, dude! That's like so totally bogus!) or something else that doesn't involve a rockstar's hairstyle?

  • The Derider||

    Why does a state mandate to purchase insurance work in Switzerland? Their healthcare outcomes are significantly better than ours.

  • Kreel Sarloo||

    "Their healthcare outcomes are significantly better than ours" because they have a more homogeneous population.

    It's quite likely that if you tracked health outcomes for the descendants of Swiss immigrants to the USA you would find that they too have "healthcare outcomes are significantly better than" those of the general population.

    It's certainly true of the descendants of Swedish and Japanese immigrants. In fact those groups in the USA actually tend to be better off than their old compatriots.

    If you actually check how the European welfare states deliver welfare services to their minority populations, you will find the record is not nearly as stellar as you think. Check with a gypsy sometime how life is in Italy or France.

  • The Derider||

    It's quite likely that you're not going to back any of that up with evidence.

    If you want me to believe the reason some European states have better healthcare than the US is "racism", you're going to need more than assertions.

  • Suellington||

    More to do with culture than with "race".

  • joy||

    "But amid the prosperity, the gap between rich and poor was extreme, a problem that Mr. http://www.petwinkel.com/pet-new-era-c-55.html Chávez and his ministers say they are

  • NotSure||

    Why does Derider keep on talking about Switzerland, do countries like Venezuela not exist in his world ? Any minute now he is going to explain how Chavez, who was democratically elected, is the darling of Hollywood and says all the things he believes in is not the right man to run Venezuela.

    Oh and Derider, do a quick internet search, people of Swedish descent really are better off in America than Sweden.

  • Johnno||

    The similarities go beyond ObamaCare and Venezuela's health care. Chavez was elected as Venezuela's first mestizo president, a traditionally oppressed racial group which had never held the office. Chavez opened up his term in office as a center-left candidate, putting in place more moderate social democratic reforms, only to become more radical as time wore on.

    The middle class in Venezuela quickly disappeared or moved away, leaving large masses of poor people to help re-elect Chavez for their handouts. Even still, when the glorious revolution didn't materialize a higher quality of life for the poor, union thugs were used to assure Chavez's continued victory in elections.

    Before long, the president started nationalizing private sector businesses and removed the two term limit for the office of the president he himself put in place in his first year in office. 10 years later, Venezuela is now openly called a socialist state.

    Welcome to the glory of the revolution.

  • ThreeAerpolanes||

    Hey, here's an idea:

    Let's take two completely different countries, one explicitly socialist and one mostly capitalist, one in the developing world, another the wealthiest & most developed nation on Earth, with different cultures and different histories.

    Then let's find one similar aspect of their governments' approach to the health care system.

    And finally, assume that because something happens in one country, it's going to happen in the other.

    Then we'll call it "Reason"

  • newshutz||

    Or you could just accept that whenever price controls have been put in place, shortages happen.

    That's called reason.

  • triclops||

    You are right!
    Instead, we should take one country, and split it into two. One, we will make marxist, and the other, capitalist.
    We can call one "North Korea", and the other, "South Korea". Or "East Germany", and "West Germany".
    And call that "Reason"...or something.

  • joy||

    "They blame unfettered capitalism for the country's economic ills." http://www.petwinkel.com/pet-red-bull-c-54.html Does that sound like any other administrations you know of? Maybe ones that start with O and rhyme with llama?

  • Tom Sawyer||

    As someone with first hand knowledge of the horrors of Chavez this article is spot on. I have been to Venezuela on numerous occasions, my wife grew up there and my parents go at least 3 times a year. There is no denying the common ground that Chavez and Obama share and that should scare us all.

  • Terrance||

    "AmericaasBadhttp://www.edhardypoort.com/Off as Venezuela!"

  • joy||

    controls imposed by Hugo Chavez or Robert Mugabe. http://www.nikewinkel.com/scho.....-c-46.html But how big a selling point is that? "America—Still Not as Bad Off as Venezuela!

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