Cato Scholar: Price Controls Didn’t Work for Rome, Won’t Work for U.S.

On February 22, President Obama suggested the federal government should be able to regulate health insurance premiums. Michael Tanner of the Cato Institute claims that idea is hardly new, and hardly primed for success:

In 301 AD, the Roman emperor Diocletian imposed price controls on most commodities and professions in the empire. The penalty for raising prices was death. Yet the controls failed utterly, leading to shortages, more inflation and the near collapse of the imperial economy.

Now, nearly two millennia later, President Obama seems determined to demonstrate how little we’ve learned.

Yesterday, the president proposed giving the federal government the power to regulate insurance premiums. Undoubtedly, this will be politically popular — at least, in the short term. Insurance companies aren’t exactly America’s most loveable industry. Recent premium hikes will result in real hardship for many Americans.

There is, of course, a certain arrogance in the assumption that Obama, Nancy Pelosi and a bevy of government bureaucrats know exactly what something should cost. No doubt, as soon as they finish setting insurance prices, they’ll move on to negotiating Tracy McGrady’s contract renewal…

Insurers unable to charge more for an increasingly expensive product can be expected to trim costs in one of two ways:

  • They can drop their most expensive customers — in this case, the sickest, who consume the most health care. Many companies are already doing this, a major source of dissatisfaction with the health-care system. In fact, the president wants to prohibit companies from doing this.

  • They can cut back on their reimbursement rates to hospitals and physicians. But neither doctors nor hospitals, any more than insurance companies, are willing to operate at a loss. If payments fall below their costs, they’ll simply stop taking patients. One only has to look at government programs like Medicare and Medicaid to see how this works.


This health care situation is regretably complex. How do you think we should improve health care costs for Americans?

One thought on “Cato Scholar: Price Controls Didn’t Work for Rome, Won’t Work for U.S.

  1. What really sucks, is that Obama is not as stupid as he likes Republican’s to think. He is very crafty. He knows that he is setting up the private industry to fail, and make no mistake, if these price controls pass, they will fail. He is setting this up so that the only option will be a complete government takeover of health insurance and, by extension, health care. This exact thing happened when liberal leaders forced banks to loan to high-risk borrowers – although I believe that was more out of willful ignorance than a calculated plot.

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