Here is a letter I recently sent to the Midland Daily news:
Colin Mealey, in his recent letter, offers a good analysis of the recent health care situation in America (“Join the Private Sector?,” April 15). The following two recommendations in the concluding paragraph, however, would likely worsen the situation: “…instead of totally revamping the system, why not just put a cap on how much health insurance can cost? Another idea, if the government thinks they can take over something as complex as healthcare, let them set up their own system and join the private sector for a little while.”
The first suggestion, to impose a price cap, would only result in shortages. Shortages always occur when a maximum price, also known as a price ceiling, is placed below the market price. For instance, if health insurance is generally provided for $800 a month and a maximum price of $600 a month is set, fewer suppliers will be willing to supply it and more demanders will be willing to purchase it.
The second suggestion, which would allow the government to “compete” against private companies, would result in lower prices for health insurance and increased taxes (whether it is in the form of a tax, debt, or inflation). Businesses, unlike governments, must serve consumers to exist. If a business does not serve enough customers to profit, it must file for bankruptcy or dissolve. Governments, on the other hand, have the ability to tax, or, put another way, have the ability to earn income regardless of the outcomes generated. This unique capability would conceivably allow the government to set health insurance prices below market prices by subsidizing its losses with taxes until all businesses were out of the market.