Price Controls

No One Knows the Cost

We talked about the high cost of healthcare. When people talk about how the US healthcare system is “broken” they are mostly complaining about cost. Getting costs down is tricky, and it’s a problem that was caused by government interference.

The Medicare Physician Fee Schedule is a 1,348-page document, and the final rule for hospital inpatient payment systems is 773 pages long. For some services, it’s impossible to know how many pages of regulations and price controls there are. For example, The Centers for Medicare & Medicaid Services (CMS) does not condense the Medicare payment rules for ambulances into a single, definitive document. The regulations for ambulance charges are spread across multiple manuals and chapters, all of which are constantly being updated and revised. A definitive page count for the rules does not exist, because no one knows for sure what all of the rules are.

All of this adds to the cost, as medical providers have to hire entire departments just to take a guess at what they can and should charge you, and even then, they often get it wrong, because the rules are contradictory.

Every time the government steps in to fix it, they add pages and chapters to the manual, but instead of fixing things, they make it more complex with carve-outs, backdoor deals that kickback money to big donors, and the need for an even larger hospital billing department.

I do want to respond to one comment, where someone said that reading a CT scan shouldn’t cost $1500 because it only takes an experienced radiologist 30 minutes or so to do it. Remember that you aren’t just paying for the radiologist. You are also paying for his malpractice insurance, the costs of compliance with government electronic charting and recordkeeping, the costs of his staff to include the billing department, and other associated administrative overhead. That radiologist is only getting a small fraction of that money, in many cases, less than a fifth of it.

  • Malpractice insurance for a radiologist is around $25,000 per year
  • Costs for electronic health records: for a smaller practice, you are looking at around $400,000 for initial costs, plus another $50,000 per year. In the case of radiologists, it will be even more to integrate with the output of proprietary CT machines.
  • Plus staff and administrative costs
  • So a radiologist is paying $200k or so a year just to read those CT scans. If he isn’t charging that kind of money, he might as well go be a plumber.

Keep in mind that an hour’s work from a plumber costs about the same as that radiologist is going to cost you.

By Divemedic, ago

Healthcare

As I have said before, since there are only so many doctors and other medical professionals, there are only a couple of ways to manage a healthcare system:

  • You can tinker with supply. That is, you can increase supply by making it easier to be a doctor, which carries its own liabilities, like lowering the skill level of the professionals performing brain surgery and the like; or
  • You can tinker with demand. There are two ways to do this, as far as I can see. You can either allow price to control demand, or you can let a government official set quotas and a waiting list.

The US has chosen to (mostly) control demand by allowing prices to dictate what people can afford. Canada has gone the route of price controls and government setting quotas with waiting lists. Let’s check to see how that is going:

Meanwhile, patients who need an ultrasound get one at my hospital within 30 minutes of it being ordered. An MRI takes a bit longer- we usually can get someone in within a day or two.

By Divemedic, ago

Just In Time

You all know that we moved to a new home at the beginning of the year. We placed our house on the market about two months ago. At first we tried to do a sale by owner. No dice. We had only one person contact us to inquire, and that led nowhere. After a month or so with no leads, we hired a realtor, who has had at least four open houses, but no dice. So we cut the price by $25k about two weeks ago. Still nothing.

No other houses that are listed in the area are selling, either. It looks like the bottom is falling out of the housing market. Nothing is selling. The realtor says that he isn’t moving inventory, and he thinks that people are waiting to see if sleepy Joe is going to get ousted, which will change the nation’s economic course and lower the insane interest rates.

In the meantime, Zillow is still showing that prices are falling like a rock. The price that Zillow is estimating for our house is a full $60k less than it was six months ago, and $10k less than it was two weeks ago.

All I know is that we have decided that, should our house still not sell by the end of our contract with the realtor, we are not going to cut our price again. Instead, we will convert it into a rental and ask for $2500 to $3000 per month in rent for an 8 month lease. Then we will see where the market is in 8 months.

In the meantime, sleepy Joe is talking about passing a law for nationwide rent control. Rent control will actually increase costs more than simply letting the market do it. I have posted on that numerous times.

By Divemedic, ago

Here It Comes

Kissimmee, one of the more liberal city governments in Central Florida, wants to pay people to house the homeless.

Homeless people aren’t simply ordinary working families who have fallen on some hard times. The vast majority of them have drug, alcohol, and mental health problems. Now imagine that you can’t evict your “tenant” or charge the market rate for rent.

That’s right: according to the city, the initiative would have some requirements: the homeowner would have to live at the property in a neighborhood that doesn’t have an HOA and the rent cost would have to be approved.

Did you get that last part? The rent has to be approved by the city. That means you won’t be able to rent this apartment that is in your home without getting the permission of the city, who will tell you how much you can charge. The city will own your house from that point forward, not you.

It gets even better:

Eligible homeowners would need a two-car garage in a home that’s homesteaded, and not governed by a homeowner’s association (HOA). If the city were to provide funding for the home expansion — Eady said she’s looking into government grants that support that — 25 percent of the rent would go to the city to defray those costs. 

That’s right: The city gets to keep 25% of the rent that you collect for the privilege of allowing homeless people to live (and use drugs or even manufacture meth) in your home. Of course, this isn’t being done out of altruism. No, the commissioner is trying to get the homeless out of her neighborhood.

Her motivation, she said, came from a family who she’s heard drives into her neighborhood very late each night to sleep in their car.

So what will be the benefit?

According to national apartment listing service RentCafe, 50% of one-bedroom apartments in the city are renting from $1,400-1,600 per month.

Said Eady: “Not everyone who needs a place can afford all that.”

So I think we can assume that you will not be able to charge more than $1400 per month for this “deal.” The city gets to keep 25% of that. You get to keep $1050 per month, with the city getting $350 of it.

Here’s the financial side of the problem:

  • Now your house is going to be valued higher, and the portion of your home that is rented out is no longer eligible for homestead tax exemption. That means your taxes will increase.
  • Your homeowner’s insurance will have to be changed to a commercial landlord’s insurance. There are very few companies that offer this, and it’s more expensive.
  • You are going to have to pay taxes on the additional income.
  • The renters will likely be using your electricity and water. That means more expense for you.
  • Now you have all of the legal liability for complying with the fair housing act, local building codes, and other regulations. If your tenant has a dog that bites someone- that could be YOUR liability.

It’s only a matter of time before the left begins mandating the housing of people in your “spare” room.

By Divemedic, ago

Price Controls

The Socialists are following the socialist playbook.

  • Institute profligate government spending policies
  • The spending causes massive, uncontrolled inflation
  • Blame business owners for the increased prices <——– You are here
  • Institute price controls
  • This causes scarcity of products,
  • Which puts pressure on the supply side,
  • Causing runaway inflation
  • Food shortages and famine

The reason why prices of food are outpacing inflation is that the government doesn’t include food and energy as a part of the consumer price index. It’s ridiculous.

Price controls don’t work. An artificially low price set by the government leads to a spike in demand, while the producers are not willing to sell at that price, considering that their profit margins drop considerably or even lurch into the negative. As demand exceeds supply, shortages emerge and consumers are left to cope with them or deal with inferior quality goods in the market. Those who bought up all of the government approved goods then resell them on the black market at the (now even more inflated) market rate.

Ask Venezuela, since they instituted price controls in 2003. The artificial prices set by the government were so low that farmers couldn’t produce food at that price. They had to go out of business. By 2008, the government was spending nearly $7.5 billion on basic food items, but even then high levels of incompetence and deep seated corruption led to the food rotting before it could reach the supermarket shelves. 

Chavez responded to this in 2009 by ordering the military to seize rice farms and make them produce at full capacity. This, and food imported from other countries that was paid for by the nation’s oil exports made up much of the shortfall, and prices stabilized for a couple of years.

Then the bottom fell out from under oil prices. By mid-2011, food prices were 9 times as high as before the price controls. Considering that elections were coming, Chavez persuaded the Venezuelan legislature to pass the 2011 Law on Fair Costs and Prices, which actually made inflation ‘illegal’. A newly created ‘National Superintendent of Fair Costs and Prices’ was empowered to establish fair prices at both the wholesale and retail levels. Companies that violated these price controls were to be subjected to fines, seizures and expropriation. So they simply stopped producing once the prices could no longer support the costs of producing goods.

This caused massive shortages, so people began to hoard necessities like toothpaste and toilet paper, with people buying up 48 rolls at a time. (Sound familiar?) Such trends saw the supermarkets being emptied out even before stockers could get in the supply. The answer for all of this isn’t that the government policies were a failure, nope. Instead, it was the greed of companies and of hoarders, so they had to go.

In 2014, Chavez’s successor Nicolas Maduro passed the Fair Prices Act through which it banned profit margins above 30% and chalked out prison terms for those caught hoarding and over-charging. 

By the year 2020, a dozen eggs cost more than a month’s wages. People were eating the animals in the zoo, as well as their pets.

That’s where we are headed.

By Divemedic, ago

It Isn’t Gouging

Peter and I usually see things from a similar viewpoint, and I generally respect and listen to his opinions. Not this time. He is saying that:

Businesses aren’t pricing their goods according to what they pay for them, plus a fair and reasonable profit.  Instead, they’re pricing them as high as they think they can get for the product. 

Then goes on to call this “price gouging. This is where I disagree with Peter.

Pricing things according to what people will pay is what everyone does. Let me explain. Let’s say that paying your bills costs you $40,000 per year. Adding on 10% for retirement savings, and 10% for discretionary spending would make your total $48,000 per year.

Now let’s say that your employer offers to pay you $60,000 per year. Do you say, “No thanks, boss. I only need $48,000, so me taking more would be unfair and unreasonable.”

Of course you don’t. So why would you expect a business to act any differently?

Prices are set by supply and demand. If customers are willing to pay $7 for an apple, then businesses will sell apples for $7. That’s what Whole Foods is selling apples for in Peter’s example.

Now let’s say that another business, call them Winn Dixie, is selling apples for $1. Now consumers have a choice: they can go get the $1 apples at Winn Dixie, or they can go get them from Whole Foods.

So why don’t consumers go to Winn Dixie, rather than Whole Foods? There are a number of reasons, which can include what the consumer perceives as the quality of the apples at Whole Foods, or perhaps the shopping experience (maybe one store is cleaner), or other issues like organic foods, the store supports causes or social issues that the consumer also supports, or any number of reasons not directly related to the costs of the apple itself. In other words, Whole Foods isn’t just selling apples. They are selling a shopping experience that some consumers are willing to pay more for.

That’s a choice we each get to make every time we purchase something. That isn’t gouging, it’s the market at work. Even when something IS considered price gouging, I maintain that it isn’t unfair. Let’s say that a hurricane hits my area. The law says that charging more than normal for products like gasoline is price gouging, and that is illegal.

Let’s say that before the hurricane, I was selling fuel for $4 a gallon, but buying it for $3 a gallon. So what happens when the hurricane hits, and everyone wants fuel? I could continue to sell fuel until I run out, then wait for more fuel to come in from my regular supplier, in which case no one gets fuel from that point forward.

Or, I can pay someone to haul more fuel in, even though it takes longer, and I may have to outbid someone else to get that supply from a different supplier. So now I can buy fuel at a higher price, pay more to have it hauled in on a chartered truck, and my cost to have the fuel delivered is now $7 per gallon. The only problem is that the law says that it is price gouging for me to sell that fuel for more than the $4 I was charging before the storm. So I stay home and don’t sell any fuel. Now there is none available at any price.

How did that help anyone, except the 10 guys who came to my establishment before the storm and bought up all of my fuel in anticipation of a shortage?

So how does the market respond? The black market comes in and makes a new, underground market. Now those ten guys are selling fuel for $20 a gallon because they are the only ones with any gasoline to be had.

This is why price controls cannot, and will not ever, work. It’s called the LAW of supply and demand for a reason.

By Divemedic, ago

Layoffs and Minimum Wage

California’s minimum wage is increasing 25% in April, to $20 an hour. Employers are going to raise prices, but that can only be done so much before customers decide to eat at home. That point, it appears, has been reached. So now the layoffs begin. Pizza Hut just laid off 1,200 workers in California. Fatburger has implemented a hiring freeze. Both chains have eliminated paid time off.

It’s almost like those of us who understand economics have been warning of this for years.

By Divemedic, ago