Price controls lead to shortages. If there can be such a thing as a law of economics, then this would certainly qualify as one.

Recently, the New York Times reported that doctors are objecting to the planned cut in the reimbursements they are paid to see Medicare patients. A mathematical formula embedded in the Medicare law requires that fees be cut 4.4 percent for 2006. For doctors, who must accept whatever price the government sets for Medicare patients, the reduction amounts to a mandatory pay cut. Will the policy have the desired effect of making care more available and affordable for seniors? Of course it won't. Already, doctors are (rightly) planning to take on fewer Medicare patients next year. The price control is the cause and a shortage is the effect.

In fact, a recent survey by the American Medical Association shows that if the new rates take effect on January 1, then more than a third of physicians would decrease the number of new Medicare patients they accept. This is in addition to the general shortage of physicians that has been festering for the last two decades.

Why do price controls lead to shortages? When the government foots the bill of a social welfare program such as Medicare, demand for that freebie rises. When demand for that freebie rises, it costs more for the government to continue to offer that freebie. Eventually, the program exceeds its budge. In order to save the program, it becomes necessary to either spend more money or alter the way in which the freebie is offered. After all, he who pays the bill calls the shots. This has been the history of price intervention and the welfare state.

When the government calls the shots, the will of the bureaucrat overrides the judgment of your doctor. In the coming years of Medicare, expect procedures that were once covered to be dropped. Expect quality to worsen, as the best doctors move on to other areas of medicine. And when pay-for-performance arrives—the alleged "quality improvement" initiative where doctors' compensation is linked to the health of their patients—expect administrators to rig the pay rubric as a backdoor way of cutting costs.

In other words, expect a government-induced shortage in medical services. Your medical care will be free, of course, but the care won't consist of what you need, when you need, or how you need it. The price will be near zero (after taxes, that is) but its value to you will be zero, period.

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