Small Biz Health Care Daily: Medical Liability Reform

Earlier this month, the President at least mentioned medical liability reform in the midst of the big debate over health care reform.

This is an issue that needs to be dealt with in terms of frivolous lawsuits driving up health care costs and the practice of defensive medicine.

U.S. Senator John Cornyn (TX) laid out some interesting points in a recent piece for The Hill’s Congress Blog:

• “Ten years ago, we faced a terrible shortage of doctors in Texas. One of the main reasons was the high amount frivolous lawsuits and jackpot justice. By enacting much-needed medical liability reform, that is starting to change and our state is now going in the right direction.”

• “The CBO estimated that the federal government would directly save about $5.6 billion dollars from the types of reforms enacted in Texas, and that total health care spending could be reduced further if these reforms reduced the practice of defensive medicine. Other academic studies have concluded liability reform could save between 5 and 9 percent of health care costs. These reforms will also increase access to health care, especially to high-risk medical specialties.”

Cornyn concluded: “Medical liability reform can’t solve all the problems in our health care system – but no health care reform bill will ever be comprehensive without it.” True.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Maine Ballot Measure Worth Watching

In November, voters in Maine will head to the polls to vote on an important ballot measure.

If passed, the Taxpayer Bill of Rights would do two things. First, any tax increase would have to go the voters for approval. Second, any government spending increase above a certain rate – based on inflation and population growth – also would need voter approval.

This is sound fiscal and economic policy by simply adding another “check and balance” to the system.

If passed, it would rein in egregious government spending increases and tax hikes that would serve as negatives for the state’s economy.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Finding More Oil

A front page story in the September 24 New York Times focuses on new oil discoveries. As the piece opens, “The oil industry has been on a hot streak this year, thanks to a series of major discoveries that have rekindled a sense of excitement across the petroleum sector, despite falling prices and a tough economy.”

The entire article is a must read, but the following key points are worth noting:

• “These discoveries, spanning five continents, are the result of hefty investments that began earlier in the decade when oil prices rose, and of new technologies that allow explorers to drill at greater depths and break tougher rocks.”

• “More than 200 discoveries have been reported so far this year in dozens of countries, including northern Iraq’s Kurdish region, Australia, Israel, Iran, Brazil, Norway, Ghana and Russia. They have been made by international giants, like Exxon Mobil, but also by industry minnows, like Tullow Oil.”

• “While recent years have featured speculation about a coming peak and subsequent decline in oil production, people in the industry say there is still plenty of oil in the ground, especially beneath the ocean floor, even if finding and extracting it is becoming harder. They say that prices and the pace of technological improvement remain the principal factors governing oil production capacity.”

What’s the deal? It’s called the market at work. As noted in the piece: “‘That’s the wonderful thing about price signals in a free market — it puts people in a better position to take more exploration risk,’ said James T. Hackett, chairman and chief executive of Anadarko Petroleum.” Mr. Hackett correctly explains the economics – prices and profits play critical roles in directing investment.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Does the Internet Need to be Micromanaged by Government?

FCC "Net Regulation" Initiative Will Harm Broadband Innovation and Deployment
...small firms and investment will suffer

If Federal Communication (FCC) Chairman Julius Genachowski advances new Internet regulations, such an initiative will negatively impact private sector investment and economic recovery. The FCC is also working on a plan to reach full deployment of broadband in the U.S., but these new Internet regulations work against encouraging the large-scale private sector investment that is needed to achieve their "broadband for all" goal.

Small businesses will invariably suffer under this intrusive regulatory regime as an investment chill will leave many small firms without broadband -- that includes the breakthrough innovations that lead to improved efficiency, productivity and expanded market access.

"Entrepreneurs who use the Internet - and those who do not yet have access to broadband - as well small businesses that are helping to build and enhance the Internet will be the hardest hit by a regulatory climate that stifles investment," as I said in response to the FCC "net neutrality" announcement.

Genachowski announced new principles to govern the Internet, and said he would initiate a "public discussion" that is "fair, transparent, fact-based and data-drive" before implementing new rules. If the Chairman sticks by his statement regarding the type of proceedings and metrics the FCC plans to use, he should ultimately conclude that the Internet does not need the type of government intervention he proposes.

The fact that the telecommunications industry is so critical to U.S. economic competitiveness and health, should make regulators wary of interference. Yet, incredibly, we see policymakers developing proposals that only fuel the flames of uncertainty. This is an astonishing move that will have unintended consequences.

SBE Council believes that the FCC should stick with the congressionally-mandated priority to fully deploy broadband. This important effort is better aligned with economic conditions and will bring hurting Americans greater opportunity. Regulating the Internet remains a lousy idea in good economic times and bad.

Karen Kerrigan, President & CEO

Small Biz Health Care Daily: Employer Savings and HSAs

Those leading the charge for more government involvement in health care have been bringing up the formidable costs faced by small businesses in providing health care coverage to their employees. There’s no denying those problems. But the questions is: What’s the solution?

The Obama administration and leaders in Congress are asserting that more government will reduce costs. How that would actually occur remains a mystery to anyone with even passing knowledge of economics and political history.

In reality, reforms that enhance competition, choice and consumer controls are what make real sense.

The Council for Affordable Health Insurance (CAHI) released a report recently that looks at how consumer driven health care – such as health savings accounts (HSAs) – actually have reduced costs.

HSAs are tax-free savings accounts linked to traditional, high-deductible health plans. Funds are deposited into the accounts by employees and/or employers. Individuals, who own their accounts, use those funds for regular, predictable health care expenses, with the high deductible health plans kicking in during years with high costs. While third-party payments (for example, from the government) for health care services drive costs higher, as neither the consumer nor the provider need to be concerned about costs and utilization, with HSAs and other consumer-based plans, the dynamic shifts. Consumers become “value-conscious shoppers in the health care marketplace,” as CAHI put it.

What are the results for employers? The CAHI report noted: “Employers … see dramatic changes with consumer driven coverage, including not only lower premiums but lower rates of growth. Premium savings vary depending on many factors, but adopting a higher deductible generally saves consumers or employers 25 to 40 percent in the price of premiums.” The report highlighted a variety of studies.

It also pointed out that HSAs are not just for the healthy, as critics assert. Findings show that HSAs benefit both the healthy and the unhealthy. Why the unhealthy? “One analysis determined that HSAs would reduce health care costs for people with high medical expenses because the out-of-pocket exposure is limited and people reach 100 percent coverage faster than they do in other forms of coverage.”

So, what makes sense – more government, or more consumer control?

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

More Cash for Clunker Doubts

More information on the ills of the government’s “Cash for Clunkers” gimmick.

William Jeanes, the AOL Autos columnist, notes a few things:

• A new survey of those who purchased vehicles under Cash for Clunkers noted that 17 percent of those buyers experienced some or serious doubts about the purchase – that’s more than twice the typical “doubt” rate.

• “Three revealing line items in a separate CNW survey noted that the drain on the family coffers would be offset by reducing the pay-down of credit card debt, deferring home improvement and removing money from non-targeted savings. About one-fifth of buyers surveyed cited each of these categories as the number one source of their car payment bucks.”

• And for good measure, there will be no fuel savings from the shift from clunkers to new, more fuel efficient cars. Why? Jeanes cites research noting that these cars will be driven more often and farther distances. He notes: “The approximately 700,000 total vehicles moved under the program will therefore use an additional 42 million gallons of fuel annually during the first years of ownership.”

• Oh yes, and there’s the following little matter: “Other critics groused that Cars for Clunkers took $2.8 billion from the general roster of 300 million citizens and handed it tax-free to a small group of 700,000 citizens.”

Don’t you just love government?

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Death Tax Reminder

The September 19 Wall Street Journal provided a reminder that action on the estate tax -- more aptly, the death tax -- looms.

The Journal noted:

President George W. Bush's 10-year, $1.35 trillion across-the-board tax cut, passed in 2001, included a slow-but-steady reduction of the levy on heirs that critics branded "the death tax." Under the law, the value of an inheritance shielded from taxation increased from $1 million to $3.5 million in 2009. The tax rate on inheritances larger than that slowly decreased from 55% to 45%. Then, in 2010, the entire estate levy was to disappear.

But it is scheduled to come back in full, pre-Bush force in 2011 -- a 55% rate on the portion of estates over $1 million -- when the entire 2001 tax cut expires. That was a compromise accepted by tax-writers to limit the long-term cost to the government of the tax cuts for budget scorekeeping purposes. But many policy makers assumed at the time that Congress in 2010 would instead vote to lock the full tax cuts in place permanently.

So much for that assumption.

Now, the White House and Congress are trying to figure out how to keep the tax around. President Obama wants a death tax with a $3.5 million exclusion and a top rate of 45%. Senate Finance Committee Chairman Max Baucus (D-MT) wants to index the exclusion level for inflation. Meanwhile, Republicans Jon Kyl (AZ) is looking for a 35% rate, and a $5 million exclusion.

What’s the policy that makes the most sense for the economy? Obviously, it would be killing this tax that is rooted in envy, discourages investment, and diverts resources from the private sector to government. And if it is allowed to die at the end of this year, will the President and leaders in Congress be willing to bring a tax back from the death?

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Small Biz Health Care Daily: Clinical Lab Tax = Small Business Tax

Included in the health care reform proposal put forth by U.S. Senator Max Baucus (D-MT), chairman of the Senate Finance Committee, was an estimated $750 million tax per year on clinical laboratories.

According to Alan Mertz, the president of the American Clinical Laboratory Association, this “will damage efforts to enhance prevention and wellness, and raise health care costs.” Mertz is absolutely correct.

This also is another tax on small, entrepreneurial firms.

In 2006 (latest Census Bureau data), there were 7,879 medical and diagnostic laboratories in the U.S.

Of those firms, 96.6 percent had fewer than 500 employees, and 78.9 percent had fewer than 20 employees. About half had fewer than five employees.

As is usually the case with new taxes, small business gets hit. The proposed tax on clinical labs is a direct tax on small, innovative businesses.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council