Colorado HB 1389: Whole Foods Quality at Safeway prices? - dream on
April 20th, 2008 | by Brian T. Schwartz |What would happen if some politicians in Denver required all the major grocery stores like Safeway and King Soopers to carry items that meet the quality standards of Whole Foods items, but cannot increase their prices accordingly? Shortages, perhaps? Might the stores stop doing business in Colorado?
But this is pretty much what House Bill 1389 would do for medical insurance in Colorado.
Regarding Colorado House Bill 08-1389, the AP reports “A House committee approved a bill Thursday that would require health insurance firms to get prior approval for rate hikes, punish them for improper denial of claims and encourage efficiencies, despite claims from the industry that it will drive up costs.”
For now I will not dwell upon the laughable idea that government bureaucrats know anything about encouraging efficiency.
Consider the irony that government prohibitions on free trade increase insurance costs in the first place. The Congressional Budget Office reports (p. 16, 20) that mandated benefits increase premiums by at least six percent, and possibly more than ten. Colorado has almost fifty mandated benefits, including those that compels widowed wives to pay higher premiums for prostate screening, maternity, and marital therapy. The same report says that “rate compression” laws, also known as community rating, increase premiums by about nine percent (p. 16).1
So government policies increase insurance premium prices, and then government wants to pass laws to forbid insurers from doing so. Something must give. Absent the above mandates on what insurance policies must include, I’d expect the insurance companies would respond to the price controls by offering products that cost them less. But if existing legislation forbids that, the companies just might stop offering products all-together.
The following excerpt from Concise Encyclopedia of Economics’ entry on Price Controls suggests the likely effect of price controls on insurance premiums will be to decrease the availability of insurance and increase the ranks of the uninsured.:
Price ceilings, which prevent prices from exceeding a certain maximum, cause shortages. Price floors, which prohibit prices below a certain minimum, cause surpluses. Suppose that the supply and demand for automobile tires are balanced at the current price, and that the government then fixes a lower ceiling price. The number of tires supplied will be reduced, but the number demanded will increase. The result will be excess demand and empty shelves. Although some consumers will be lucky enough to purchase tires at the lower price, others will be forced to do without.
Representative Morgan Carroll and Senator Paula Sandoval introduced this bill. Carroll has blogged about it here , where she claims to “tackle the insurance industry.”
1 Thanks to Michael Cannon at the Cato Institute for citing this and clarifying it over e-mail.
You might also like:
