Governor to Suspend Economics by Decree


On the tropical island of Rhod Ah, Chief Rai Mondo has convened a council of the Elders to craft words by which to decree that the island’s active volcano will no longer erupt.  Said the chief, through a translator:

Right now, if you own a business on Rhode Ah Island or if you’re anybody who lives here, the lava has been encroaching on your life every single year.  It’s unaffordable.  It puts a burden on islanders who just want to go about their lives.  It makes it so other people don’t want to come here and makes it harder for us to get anything done.  The whole point of this decree is to say, “Hold on.  We can’t sustain that.  Let’s bring the amount of volcanic activity down.”

OK, that’s not the story.  Actually, Governor Raimondo has convened a “Working Group for Healthcare Innovation” with the central mission of figuring out how to place “a cap on both public and private health care spending.”  The model state, Massachusetts, ties health care spending to the state economy, but according to Providence Journal reporter Jennifer Bogdan, “some suggested that the Massachusetts law did not provide a strong enforcement mechanism for sticking to those targets.”

This is a terrible, terrible idea, and it’s backwards in the both the sense that it seeks to decree a plug at the output-side of an essentially natural process (economics) and in the sense that it’s retrograde, like a laughable island dictatorship.  The Massachusetts experiment has not run its course, yet, and there’s always room for spin, but this September article from the Boston Globe shows hints of the problems that one should expect:

Partners spokesman Rich Copp said costs grew faster than expected in 2013, but that over time Partners will reduce costs by delivering more coordinated care in lower-cost community settings instead of its big academic hospitals, Massachusetts General and Brigham & Women’s. Partners is trying to acquire community hospitals north and south of Boston. …

… The annual estimates are an outgrowth of the state’s landmark health care reforms, which sought first to expand insurance coverage and later to control costs — among the highest in the nation. …

… Doctors at UMass Memorial Health Care decreased spending 1 percent for some patients, while the doctors group Atrius Health had a decrease of 3 percent for others.

Something and someone is driving the spending.  A top-down decree to control spending will not necessarily target the people and incentives that create the spending, but those that the people at the top want to target.

At the end of the day, such caps create incentive for consolidation and quotas, less choice, and increasing transfer of costs (which will continue to grow) to those in preferred groups or roles in the market and from everybody else.