Unfortunately, North Carolina patients are still the victims of the ultimate CON job — the use of certificates-of-need to create local medical monopolies based on a bizarre theory that restricting supply will reduce the price. JLF’s Roy Cordato exposed the CON job five years ago.
RALEIGH – Not long ago, I wrote about the Tar-Baby Syndrome in government. It consists of the tendency for public officials, after putting some initial tax money in a questionable enterprise, to attempt to keep it from failing by pouring in additional tax money. No one wants to admit error, which is the implicit message of walking away from a government boondoggle, and in a deluded frame of mind one is an easy mark for skillful lobbyists who promise that “just a little more” will let them spin straw into gold.
A little mixed metaphor, Joel Chandler Harris meets the Brothers Grimm, but I think you get my meaning.
Well, another version of the Tar Baby Syndrome has to do not with cash subsidies but with other kinds of policy interventions. In health care, for example, much of the problems that persist in the American system – waste, bureaucracy, lack of choice – stem from initial government interventions.
Starting in the 1930s, state governments used tax and regulatory policies to prefer some health-care arrangements, such as third-party payment plans from Blue Cross (hospital) and Blue Shield (physician) associations, over systems run by life insurers that paid claims directly to patients, who then had strong incentives to scrutinize medical bills and shop around for the best care.
In the 1940s, during wartime wage and price controls, the federal government made the situation worse by exempting non-wage benefits provided by employers from income taxation and federal wage caps. The result was an explosion of health insurance as a form of compensation, again taking the individual consumer out of the mix in favor of decisions by bureaucrats – first in the private sector, then increasingly in the government via Medicare and Medicaid.
The consequences of over-reliance on third-party payment for routine medical bills should by now be well known. Individual consumers pay little attention to cost. Reacting to the resulting cost spirals, insurers attempt to respond with restrictions. Those who work for large employers benefit more from such a system, subsidized generously through unlimited tax exclusions for health benefits, while small-business workers and the self-employed get less.
The Tar Baby Syndrome kicks in when government policymakers, reacting to a set of problems largely caused by the original sin of intervention, attempt to “fix” them with new interventions. Dr. Roy Cordato, JLF’s vice president for research, discusses one such costly intervention in a new policy report: North Carolina’s certificate-of-need (CON) laws.
Originally enacted in response to a federal mandate, these laws stayed on the books in North Carolina even after the mandate ended and other states abandoned the practice. CON essentially makes hospitals and other medical providers get state permission to add major units or services such as beds or testing devices. The notion is that, given the prevalence of third-party payment, the normal economic rules don’t apply. More hospitals and service options means higher rather than lower prices, CON defenders say, because competition can’t reduce the set rates paid on behalf of patients by insurers or government.
The argument may sound plausible, but Cordato argues that it doesn’t meet the real-world test. In the states that got rid of CON, health-care costs aren’t higher than in CON states such as North Carolina. Some studies show CON states to have higher costs (though that doesn’t have to be true for CON to be invalidated, since even equivalent costs means that consumers are giving up other benefits of choice and competition in CON states for no good reason).
The idea that markets don’t work in health care is “not grounded in either economic theory or empirical evidence,” Cordato concludes. But it has proven politically sticky.
Hood is president of the John Locke Foundation.