Small Biz Health Care Daily: Health Care Economics, Part II

As noted in yesterday’s “Small Biz Health Care Daily” post, what’s missing from the current health care policy debate raging in Congress is sound economics.

In addition to the previously noted essay titled “Health Care” by Michael A. Morrisey,
The Concise Encyclopedia of Economics offers another important essay that policymakers, business owners and concerned citizens need to grasp. In his entry titled “Health Insurance,” John Goodman provides the background and basics on how health insurance should and does functions.

Goodman highlights several problems with health insurance today. That includes the following:

“A third source of the problem is state government regulations, including laws that mandate what is covered under health insurance plans. Under these laws, insurers are required to cover services ranging from acupuncture to in vitro fertilization, and providers ranging from chiropractors to naturopaths. Coverage for heart transplants is mandated in Georgia, and for liver transplants in Illinois. Mandates cover marriage counseling in California, pastoral counseling in Vermont, and sperm bank deposits in Massachusetts. Studies estimate that as many as one in four uninsured people have been priced out of the market by such regulations.”

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Small Biz Health Care Daily: Health Care Economics

What’s missing from the current health care policy debate raging in Congress? Economics.

Quite simply, there’s too much politics and not enough economics in the debate. I suggest that policymakers, interested parties, business owners, taxpayers and consumers pause and consider the actual economics of health care.

The Concise Encyclopedia of Economics offers an ideal essay titled “Health Care” by Michael A. Morrisey. He is a professor of health economics in the School of Public Health and director of the Lister Hill Center for Health Policy at the University of Alabama at Birmingham. Morrisey does an excellent job in hitting the major economic points governing health care, including insurance, spending, taxes, managed care, government health insurance and regulation.

In addition, Patricia Danzon takes a look at the inefficiencies of socialized medicine. She points out the following:

“Both economic theory and a careful review of the evidence that goes beyond simple accounting measures suggest that a government monopoly of financing and provision achieves a less efficient allocation of resources to medical care than would a well-designed private market system. The performance of the current U.S. health care system does not provide a guide to the potential functioning of a well-designed private market system. Cost and waste in the current U.S. system are unnecessarily high because of tax and regulatory policies that impede efficient cost control by private insurers, while at the same time the system fails to provide for universal coverage.”

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Small Biz Health Care Daily: Importing Price Controls

OK, let’s see if I have this straight. TheHill.com is reporting today that President Obama still supports the reimportation of prescription drugs. However, Obama’s own Food and Drug Administration opposes reimportation.

As a senator, on the campaign trail and in his budget, Obama has supported reimporting drugs. The House included reimportation in the health care bill it narrowly passed.

But the FDA letter regarding a reimportation amendment from Senator Byron Dorgan (D-ND) declared that “as currently written, the resulting structure would be logistically challenging to implement and resource intensive. In addition, there are significant safety concerns.”

That most certainly is a key issue. Even more daunting, however, is the fact that allowing for reimportation means importing price controls imposed by other nations.

Price controls, in turn, mean limiting potential returns. And given the high costs and high risks of researching and developing new medicines, this all adds up to less investment and less innovation. That is, the development of fewer life-enhancing and life-saving drugs.

For good measure, it is important to be reminded that this will impact small-to-mid-size entrepreneurial firms in the pharmaceutical business, and they turn out to be most of the firms in the drug business. As noted previously, in 2006, according to the latest Census Bureau data, 90% of pharmaceutical and medicine manufacturers had fewer than 500 employees. In fact, 56% had fewer than 20 employees.

Importing price controls is dangerous for business, and dangerous for consumers in a variety of ways. Let's hope the U.S. Senate has the good sense to reject such a reckless measure.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

SBE Council Chief Economist on President Obama’s Speech on Economy

Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement in response to President Obama’s December 8 speech on the economy:

“The President correctly emphasized the importance of small business to economic growth and job creation. Unfortunately, his policy measures either come up woefully short, or are actually pointed in the wrong direction.

“Reducing capital gains taxes and extending write-offs of capital spending are needed steps. Unfortunately, the President’s ideas here are targeted, temporary and conflicted. The economy needs substantive, permanent tax relief that boosts incentives for entrepreneurship and investment. For example, permanently reducing individual and corporate capital gains tax rates to 10% and indexing gains for inflation, and offering all businesses the write-off option would make sense. But the President not only is offering temporary measures, but also is pushing a variety of tax increases that would negatively affect entrepreneurs and investors, including higher personal income and capital gains tax rates. That’s confused economics.

“President Obama also called for creating ‘a tax incentive to encourage small businesses to add and keep employees.’ Such additional mucking with the tax code is a dubious endeavor, and would be unnecessary if broad, pro-growth tax and regulatory relief were being implemented.

“Finally, the President’s emphasis on more government spending on infrastructure and ‘clean energy’ will do nothing to boost the economy, while expanding opportunities for government to waste taxpayer money. Obviously, that’s not good for the economy.”

Small Biz Health Care Daily: A Health Care Compromise?

The word “compromise” has been getting a workout in political and media circles of late when it comes to the push for more government in health care. But there isn’t any true compromise or debate going on right now. Instead, it’s all about Democrats in Congress wrestling over the shape of big government health care.

The latest ideas being offered are: 1) the Office of Personnel Management running a new national health plan by contracting with various private insurers, 2) Medicare eligibility being expanded, starting at age 55 rather than at 65, 3) Medicaid covering individuals with incomes up to 150 percent of the poverty level, and 4) mandating that insurers spend a certain percentage – around 90%, according to the New York Times – on clinical services, thereby limiting profits.

The effects of such ideas are clear. Government running a new plan means expanding government’s power and control in the health care marketplace, and exposing taxpayers to added costs. Expanding Medicare and Medicaid means socking taxpayers with huge cost increases, as both programs have experienced runaway costs over the decades. And limiting insurance company profits means limiting innovations, investment and competition.

For small businesses, all of this would translate into higher costs via taxes and reduced choice in the marketplace.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Groups Outline Small Business Opposition to Reid Health Bill

The Small Business & Entrepreneurship Council (SBE Council) joined nine other business groups representing small business, to make Members of the United States Senate aware that minor changes to the Reid bill aimed towards “improving” its effectiveness for small firms will not mollify the organization’s grave concerns “about the bill’s far-reaching impact on business costs, the economy and our nation’s health care system.” In a letter sent to all U.S. Senators on December 7, the groups wrote that the Reid bill, HR 3590, will lead to higher costs and increased burdens on small businesses.

“Meaningful and serious reform legislation will reduce health coverage costs and bend the cost trajectory down – not only for public plans, but most importantly for individuals and businesses of all sizes. HR 3590 does not measure up to this key objective,” wrote the organizations.

SBE Council joined the Associated Builders and Contractors, Associated General Contractors, Independent Electrical Contractors, International Foodservice Distributors Association, International Franchise Association, National Association of Manufacturers, National Association of Wholesaler-Distributors, National Retail Federation and the U.S. Chamber of Commerce in signing the letter.

Above and beyond the fact that HR 3590 does not reduce health coverage costs for small businesses, the groups reviewed a range of concerns about the legislation including new taxes and regulations that will make health insurance more expensive, not less. The groups expressed opposition to new taxes, fees and penalties totaling nearly half a trillion dollars, which fall “disproportionately on the backs of small business.”

According to the letter: “Small firms are in desperate need of this precious capital for job creation, investment, business expansion and survival.” The letter questions the usefulness of the small business “tax credit,” conveying that “Even if the tax credit were substantially enhanced and lengthened, the overall cost of HR 3590 to taxpayers and the economy – combined with the specter of the status quo at best when it comes to premium costs, on top of tax increases, mandates, government-designed insurance and harsh penalties – far outweigh minor attempts to fix a bill that is flawed in its overall approach.”

The groups urge the Senate to “start over and begin work on a new legislative approach that addresses the concerns of America’s small businesses.” To read the letter in its entirety, please click here.

Karen Kerrigan, President & CEO

Small Biz Health Care Daily: Opposing Government Care and Supporting Slavery?

People of good conscience can disagree over how best to reform health care, can’t they? And debate can be spirited and pointed without character assassination, right?

Opposition to more government involvement in health care can be rooted in concerns over how rising costs will hit small businesses, consumers and the overall economy, along with more government control centralizing health care decision-making and diminishing the quality of care. After all, that’s what economics and history tell us.

But Senate Majority Leader Harry Reid (D-NV) compared those who oppose more government regulation, mandates, spending and taxes in health care to those who supported slavery. As reported by FoxNews.com, Reid declared on the floor of the U.S. Senate on December 7:

Senate Majority Leader Harry Reid took his GOP-blasting rhetoric to a new level Monday, comparing Republicans who oppose health care reform to lawmakers who clung to the institution of slavery more than a century ago. The Nevada Democrat, in a sweeping set of accusations on the Senate floor, also compared health care foes to those who opposed women's suffrage and the civil rights movement …

"Instead of joining us on the right side of history, all the Republicans can come up with is, 'slow down, stop everything, let's start over.' If you think you've heard these same excuses before, you're right," Reid said Monday. "When this country belatedly recognized the wrongs of slavery, there were those who dug in their heels and said 'slow down, it's too early, things aren't bad enough.'"

He continued: "When women spoke up for the right to speak up, they wanted to vote, some insisted they simply, slow down, there will be a better day to do that, today isn't quite right. When this body was on the verge of guaranteeing equal civil rights to everyone regardless of the color of their skin, some senators resorted to the same filibuster threats that we hear today."

All, including those in the small business community, who are opposed to imposing the ills of increased government control over health care should be offended by Reid’s extremist comments.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council