July 4, 2022

Some States Are Trying to Cap Travel Nurses’ Pay. Here’s Why That’s a Bad Idea

Those who wish to implement price caps really just wish to ignore the reality of scarcity.

Kirsten Newcomb worked in Virginia as a nurse for ten years. Her job was grueling. She’d work four 10 hour shifts each week. In 2020, she decided to make a change and start travel nursing—an arrangement where hospitals and other healthcare providers hire nurses for short-term contracts. As part of the arrangement, nurses are not only paid much higher wages, they also are usually given generous stipends for food and housing.

“Once I start looking for a new contract, it typically takes about a week,” says Newcomb. “I can pretty much pick wherever I want to go next.” Lately, Newcomb has been spending her time in Hawaii. Not a bad place to ride out a pandemic, even for healthcare workers.

Kirsten’s experience is one shared by a growing number of nurses who are participating in the booming travel nursing industry. As you are probably aware, there is a healthcare provider shortage in the US. The shortage existed even before the pandemic (and largely stems from government, which creates barriers to entry in the field), but the pinch has really been felt since COVID-19 hit our shores.

Due to that, the pay for travel nurses has ballooned, as one might expect when demand surges and supply is constricted. August numbers show a weekly average rate of over $2,500, compared to a December 2019 average weekly pay of just over $1,000.

But some lawmakers have decided that they want to make the situation worse and are considering legislation that would cap travel nurses’ pay.

In Pennsylvania, for instance, Representative Timothy R. Bonner wrote a memorandum on November 5, 2021 where he stated his intention to introduce a bill that would “establish maximum rates on agency health care personnel,” specifically in “nursing homes, assisted living residences and personal care homes.” So basically, he wants to set price caps for the agencies that act as middlemen between travel nurses and healthcare facilities.

In his memo, Bonner also referred to some efforts to the same effect at the national level. “…the American Health Care Association recently sent a letter to the Federal Trade Commission (FTC), requesting that the FTC use its authority to protect consumers from anti-competitive and unfair practices regarding agency staffing.”

As news of this broke in online nursing channels, some nurses, nurse.org reported, hinted they would strike if price control legislation came to pass. Others pointed out the price caps would almost certainly make the shortages worse since travel nurses would simply not pick up new assignments.

“I sure as heck won’t take any assignments in any states that cap my wages,” one nurse commented on a Facebook page for travel nurses. “I leave my family and home to go into hot zones to help out. I have marketable skills … you want my skills in your [hospital], then compete for me.”

Why This Is Misguided

Travel nursing is actually a beautiful example of the free market at work (it still manages to find a way, even in fields overrun with regulations and cronyism like our healthcare industry). This structure ensures demand is still met despite shortages—and in this case, shortages can be deadly.

Travel nurses are paid more for a reason. The higher wage incentivizes them to leave their families and their homes to live in unfamiliar locations for extended periods of time. The higher pay ensures that demand is met when the need is urgent. Leaving family and traveling for long periods of time reflects the fact that traveling nurses experience high opportunity costs. So, in order to incentivize nurses to supply more, they must be compensated with higher wages to make up for large opportunity costs. Economists call this the law of supply.

We don’t have to wonder or even rely on economic theory alone to know what would happen should politicians implement price caps on travel nursing. The online nursing community is making it known loud and clear—they’ll stop showing up.

“There are some professions you can play with, nursing is not one of them!” one nurse responded,noting the economy’s high demand for nurses.

Price caps would ultimately spell disaster for patients, who would not be able to get healthcare when they need it, particularly those who live on the margins or live in rural areas.

The Economic Theory

Price is merely a signal that represents the amount of resources available. Those who wish to implement price caps really just wish to ignore the reality of scarcity. But while they may wish to bury their head in the sand, it won’t shield them from the results of the policy. Price caps cause shortages, it’s basic supply and demand.

As economist Thomas Sowell has said, “Why do price controls cause shortages? There are basically two reasons: supply and demand. People will not supply as much at a lower price as they will at a higher price.”

We don’t have to look very far back in history to find numerous examples of price caps causing shortages. It’s time we learn from past mistakes. What politicians really need to do is remove barriers to entry in the healthcare field so we can increase the number of providers. Allowing markets to function freely is the only thing that will actually bring the price of healthcare down.

This article, Some States Are Trying to Cap Travel Nurses’ Pay. Here’s Why That’s a Bad Idea, was originally published by the Foundation for Economic Education and appears here with permission.  Please support their mission.