A Price Control By Any Other Name Is Still A Price Control

As promised, the state of Massachusetts has decided to smack down proposed health insurance premium hikes:

Under the emergency regulations invoked by [Governor Deval] Patrick, insurers were required to submit proposed increases—along with actuarial data—30 days before their effective date so they could be reviewed by Insurance Division staffers and consultants. In the past, the carriers simply notified the division of rate increases on the day they took effect.

The Insurance Division, in letters to carriers, outlined reasons for the rate rejections. Among them were rate proposals that are significantly above the medical consumer price index—a consumer health care spending measure estimated at 4.8 percent—and proposals that failed to explain how insurers set different reimbursement rates.

So, as far as I can tell, the theory here is: Reject rate-hike proposals as against the rules, but decline to clearly state what the rules are. Somehow, I do not think this is the best way for the state to produce its intended results. Nor is it clear what Governor Patrick, who's behind the decision to reject rate increases, thinks is actually going to happen here. The back and forth between the state and the insurers seems to be going something like this:

State: Keep your prices down!
Insurers: Um, OK. How?
State: How the hell are we supposed to know?

Except, of course, it's blindingly obvious how. Service cuts, reduced coverage—all of which will likely coincide with increased demand given the artificially lowered prices. And if insurers can't afford to operate under the state's strictures, they'll pack up and leave, or threaten to leave until they get permission to raise their rates. This isn't entirely hypothetical, either: These sorts of problems have plagued Florida since it instituted stricter controls on property insurance premium rates.

Nor is it some obscure, little-understood economic notion: Even President Clinton's economic team was wary of medical price controls. But not Deval Patrick. He believes! This time will be different! I know everyone loves an optimist, but "maybe it will actually work this time" just doesn't strike me as the best basis for effective policy.