With health insurance premiums surging again, a growing chorus of economists and policymakers has settled on a cure for American health care: Cap what hospitals, drug makers and insurers can charge. The idea shows up in many forms, including Medicare drug price negotiation, proposals to limit private hospital prices to multiples of Medicare rates, and calls for public plans that pay providers at government-set rates.
Their diagnosis is half right. Prices are high, opaque and frequently baffling, and they often do not reflect superior quality or convenience.
But it does not follow that the government can fix the problem by replacing current prices with government-set ones, whether through hospital price caps, drug price limits or ceilings on insurance premiums. A price cap isn’t merely a limit on what can be charged; it’s a claim that regulators know what the maximum price should be, and that they can keep that judgment from being manipulated by the very industries it is meant to discipline. On both counts, the confidence is misplaced.