The Maryland state legislature has stolen the Clintons' health-care thunder by enacting a new law that creates a more bureaucratically planned health- insurance industry. The new law provides for price controls, mandated benefits and bureaucratic micro management by a new "Health Care Access and Cost Commission" and is widely touted as a model of "managed competition," the theme of the Clinton administration's health-care reform package.
The law focuses on small businesses, since that is where there are supposedly thousands of uninsured or underinsured workers. Specifically, insurers are prohibited from setting rates according to an assessment of risks facing the employees of a small business. Instead, they are required by the new law to price according to the general level of risk in "the community."
A small construction firm, for example, whose employees face greater risk of injury than, say, the employees of a yogurt shop, will nevertheless pay the same insurance rates as the proprietor of the yogurt shop. This is an implicit form of price control, the inevitable result of which will be lower-quality insurance products as insurers respond by cutting the cost of insurance provision. Some insurers will realize that they can no longer operate profitably and will leave the state.
The Maryland health-insurance bill requires the new commission to develop a "comprehensive package of benefits" that must be offered to anyone who wants coverage. By mandating that an entire package of benefits must be provided, thereby precluding "no-frills" health insurance, the bill will cause the cost of providing health insurance to rise dramatically. It is as though a new "Automobile Access and Cost Commission" were to decree that every new car sold must include leather interior, power windows, dual air bags and myriad other extras. The price of automobiles would obviously go up, as the true cost of health insurance in Maryland surely will.
If the legislature was truly interested in reducing the cost of health insurance, it would eliminate mandated benefits, not expand them. Now that this policy has been announced, lobbyists for every conceivable medical-care provider will converge on the state capital to assure that their kind of care is included in the mandatory package.
Because the law drives up costs while limiting revenues with price controls, insurance companies can be expected to respond by rationing insurance to only the most insurable in an attempt to control their costs. The government planners in Annapolis have anticipated this reaction; consequently, the new law prohibits insurers from turning anyone away, even people with serious, pre- existing conditions. Insurance must be offered to these individuals, and at price-controlled fees. This is not "insurance," but welfare. They might as well also mandate that people who have just been in an auto accident be offered care insurance.
The bill will not only chase insurance companies from the state; it will also scare off the best physicians by empowering the new "cost commission" to impose price controls on physicians' fees. Under the new law, the commission has the power to do so if it decides a physician's fees are "unreasonable" compared to other physicians.
The political pressures to limit physicians' fees will be enormous: Price controls are inevitable. Many of the most highly skilled and experienced physicians, whose expertise warrants higher fees, will leave the state and practice elsewhere. Furthermore, if standard fees are established by bureaucratic fiat, the more mediocre or incompetent physicians will be rewarded by being able to charge higher fees than they could normally command in the open market. The best and brightest are given incentives to leave the state, while the mediocre and incompetent are attracted to it.
The Maryland legislature -- like the federal government -- virtually ignored tort reform as a partial solution to rising health-care costs. This is understandable, given the power of the trial attorneys' lobby. Instead, it has relied on "managed competition," a euphemism for centralized, bureaucratic planning that has been a proven failure in any industry in which it has ever been tried.
Ever so confident in the power and efficacy of the state bureaucracy, Senate Minority Leader Jack Cade said of the health-insurance bill: "A step in any damned direction would be an important one with the inertia we have today." Unfortunately, this "inertia" toward socialized medicine has also infected the Clinton administration. We are headed for a health-care reform disaster.
Thomas DiLorenzo is a fellow of the Center for the Study of American Business and professor of economics at Loyola College.