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Price Controls Are Not a Free-Market Solution

By Austin Dillon

The Lower Health Care Costs Act (LHCCA) has recently gained new attention as a result of efforts to combat surprise billing associated with the COVID-19 pandemic. Proponents have even gone so far as to call the LHCCA’s median pricing benchmark a “free-market solution.” Take for example this quote from a piece recently published in the Epoch Times:

"The Lower Health Care Costs Act’s median pricing benchmark is the only free- market solution that is fair to both patients and doctors, and it’s the only solution that actually stops surprise medical billing. Doctors refusing to go in-network would receive the median in-network rate for their local area. Opponents falsely argue this is a government-set rate when in reality it’s actually a dynamic price that automatically goes up or down depending upon real-time market prices."

Calling the LHCCA benchmark a “free-market solution” is a thinly-veiled attempt to disguise its true nature: government intrusion into the market. While the LHCCA may not set a hard-and-fast rate like typical price controls, it limits the market’s ability to respond appropriately to the forces of supply and demand. Creating a “dynamic” price control does not make it an element of the free market.

In reality, price controls are often quite harmful to the proper functioning of market systems. The free-market price system cues producers on how much of a product to produce. As such, market prices represent what Hayek describes as “the knowledge of the particular circumstances of time and place.” In other words, market prices reflect alterations in specific consumer preferences far more efficiently than top-down regulatory approaches.

Not only do price controls fail to signal appropriate demand in a market price controls remove the profit incentive which drives producers to produce. In a public statement on the LHCCA, the American Hospital Association argues that “[a]rbitrary, government-dictated reimbursement would result in significant unintended consequences for patients and create a disincentive for insurers to maintain adequate provider networks, particularly in rural America.”

Regardless of one’s views on the LHCAA’s benchmark, it is simply disingenuous to describe such a price control as a “free-market solution.” Price controls hinder the free market, and policymakers must recognize that implementing such controls on the healthcare industry would undoubtedly place more burdens upon the patients they seek to protect.

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