The Cost of Regulation
It has been estimated that the Obama administration is on track to implement over 3800 new regulations this year. Business owners and managers can’t even begin to understand the impact of laws we don’t know about. This all feels like the magician’s trick – watch this hand, while the other hand takes your wallet! PPACA is ready to make a huge impact on our collective business system, and while we watch American politics degenerate into TV sound bites, more and more magical regulations keep appearing.
The challenges for small and medium sized business seem overwhelming at times. For the longest time the cost of government regulation were hidden costs of doing business. Costs were only identified in terms of hard dollars directly related to some operational or physical plant change. The impact of OSHA compliance on the work place was easy to see. There would be a physical change to the structure, personal protective equipment, training expense – these were items we could clearly see on the P & L.
But now a much more insidious cost has penetrated our collective balance sheets and latched on to the blood stream of entrepreneurial and corporate America. Over reaching and uninformed regulators have taken a one-size fits all approach to their thinking. Now – keep in mind – legislators and regulators are people that do not have to live with the rules they pass. For example:
1. Congress and Senate do not participate in Social Security.
2. Government employees are allowed to have “comp” time where they can trade over- time hours for paid time off (for-profit business cannot do this).
3. Reduction in agency operating budgets have turned protection agencies into revenue enhancement agencies needed for their own survival.
4. Agencies like EBSA and OSHA are graded and evaluate on how much financial penalty is assessed against free-market businesses.
5. Pension plans and health benefits for life are passed by the same legislators that determine how much tax we pay.
6. New regulatory agendas that target small and medium sized businesses.
You get the idea!
Only now are we beginning to understand the real cost of government regulation and how this insidious penetrator is manifesting inside our health care delivery system and dramatically impacting the cost.
The outcome for all federal regulations and all business sectors is that regulations cost small firms an estimated $7,647 per employee annually. Regulations cost medium-sized firms $5,411 per employee and large firms $5,282 per employee. Overall, the cost per employee is 41 percent higher in small compared with medium-sized firms and 45 percent higher in small than in large firms.#2
Health insurance is on everyone top-ten list. What was the cost of health care regulation before PPACA?
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Unfortunately, a lot of this information regarding the cost of regulation seems to be available, but in no way connected so as to get an understanding of the real cost to the consumer. Therefore, one is required to sort through all the various data points to find something that is not politically motivated or biased from the source provider. Therefore, we read and study to help sort this out for our clients.
The various sources are given credit for the data, but we get the credit or blame for the speculation and trying to show the connectivity of the information.
“All told, cost-related insurance regulations provide a net cost of $10.7 billion. It should be noted that to represent the burden of health services regulation accurately, the Employee Retirement Income Security Act is excluded.
ERISA allows companies that are self-insured for health coverage to be excluded from a number of regulations. ERISA laws produce a $46 billion net benefit from blocking the costs that state regulations (state benefit mandates, premium taxes, etc.) would otherwise impose on these insurance plans if they were covered through a traditional carrier. Currently, it is estimated that self-funded employer health plans cover over 120 million Americans.
Since those would-be costs are not entered on the cost side to include the benefits ERISA provides, by blocking them effectively would credit ERISA with creating $46 billion in benefits when in fact the law merely returns these health plans to a pre-regulation status quo ante" #3
And for the final blow to our regulator mindset, The Institute of Medicine, Care without Coverage, has estimated that 18,000 uninsured Americans die every year due to lack of coverage. In other words, over 4,000 more Americans die every year from health services regulation than die due to a lack of health insurance. This is information from a historical perspective prior to PPACA (Healthcare Deformity) legislation.
Since those would-be costs are not entered on the cost side to include the benefits ERISA provides, by blocking them effectively would credit ERISA with creating $46 billion in benefits when in fact the law merely returns these health plans to a pre-regulation status quo ante" #3
And for the final blow to our regulator mindset, The Institute of Medicine, Care without Coverage, has estimated that 18,000 uninsured Americans die every year due to lack of coverage. In other words, over 4,000 more Americans die every year from health services regulation than die due to a lack of health insurance. This is information from a historical perspective prior to PPACA (Healthcare Deformity) legislation.
The winds of political change are blowing, but yet we don’t know if the wind will bring life giving rain or a flood of biblical proportion. Let’s hope for a gentle rain.
#1 The U.S. Census Bureau reports a total 109,297,000 family and nonfamily households in
2002. U.S. Bureau of the Census, “Table HH-1. Households, by Type: 1940 to Present,” http://
www.census.gov/population/socdemo/hh-fam /tabHH-1.pdf, June 12, 2003, p. 1.
#2 The Impact of Regulatory Costs on Small Firms, by W. Mark Crain, Lafayette College, Easton, PASBA Office of Advocacy Sept 2005
#3 Health Care Regulation, A $169 Billion Hidden Tax, Christopher J. Conover 2004
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