Voice For Liberty

Tag: Regulation

  • Eliminate all health insurance profits, and what’s left?

    Those who advocate government takeover of health care and the elimination of private insurance cite the “wasteful overhead” and “high profits” of health insurance companies.

    There’s a lot in this argument that doesn’t make sense. For one, most companies that are trying to earn a profit seek to eliminate as much waste and overhead as possible. Competitive markets force them to do so.

    It’s puzzling to me that those who rail against greed don’t acknowledge that it is a powerful motive for efficiency and cost reduction.

    While the health insurance market isn’t as competitive as it could be, due to tight regulation by the states, it still exhibits some characteristics of a market. If we would eliminate the practice of nearly all health insurance being purchased by employers, the market would be even more competitive.

    The weakest argument by those who advocate for government takeover is the high profits argument. Reporting in the Wall Street Journal indicates that profits in the health insurance industry are quite low.

    “For every premium dollar that they take in, about 83 cents goes out in medical costs — doctors, hospitals, and drugs,” says Carl McDonald, health insurance analyst at Oppenheimer & Co. The rest is spent on overhead. Net income comes to just a few cents per dollar of premiums.

    Consider WellPoint, the biggest private health insurer on Wall Street, which has about 35 million customers nationwide. Last year, it paid out 83.6% of revenues in expenses. Net, after-tax income as a percentage of total revenue came to a princely 4.1%.

    In other words, simply eliminating profits would only allow the public option to undercut the private sector by 4% or so.

    So much for profits being the cause of the high cost of health care.

    Keep in mind that in free, competitive markets companies can earn profits only when they satisfy customers, and do that efficiently. For a health insurance company, that would mean paying the claims it has agreed to insure at the lowest possible premium cost to its customers.

    The fact that so much insurance is bought by employers instead of the ultimate customers of the policies means that we don’t benefit from innovation and competition in this market.

    For example, one legitimate concern is that if someone is insured through their job and they become sick for a long period, they’re probably going to lose their job and their insurance. This would be at the same time they’re trying to recover from an expensive and debilitating illness.

    In the life insurance industry, policies may have an optional feature called “waiver of premium” or something like that. Under this provision, if an insured person isn’t able to pay their premiums for a covered reason, the policy remains in force.

    Do health insurance policies have this feature? And if so, does my employer offer this?

    This type of innovation is present in the life insurance market because it is relatively lightly regulated, and most people buy their own life insurance rather than relying on someone else to buy it for them.

    We can also look to the automobile insurance market for examples of innovation that aren’t present in the health insurance market.

  • Government regulation failed again, yet more is called for

    “No matter how much the government controls the economic system, any problem will be blamed on whatever small zone of freedom that remains.”

    That’s the opening shot in Sheldon Richman‘s article The Madoff Scandal Exposes Government Failure.

    Richman quotes a columnist who wrote, as have many, “The long, bipartisan experiment with financial deregulation has failed utterly.” As if that happened. Richman counters: “… there has been no relevant financial deregulation to speak of. In fact, since Enron’s collapse, regulation has intensified and the regulatory budget has grown.”

    Richman makes these major points:

    • “A false sense of security is worse than none at all.” Relying on a faulty protector is worse than no protector at all. Then, at least you know that you have to fend for yourself.
    • “Advocates of regulation may reply that even seasoned investors may not be able to recognize inadequate disclosure of key factors.” Recall that many of those who lost money to Madoff were wealthy and successful people. As Richman states, “What makes anyone think government regulators are better able to spot fraud than potential investors and professional watchdogs?”
    • “The call for regulation assumes — without grounds — that government can protect investors from con men.” We see failure of regulation all the time. A meat packing plant has one or more full-time government inspectors, yet the plant still sends out contaminated product.

    In conclusion: “The claim of free-market advocates is not that we need no protection from the unscrupulous. Rather, it’s that protection is maximized by undiluted market discipline — profit and loss — and buyer-beware skepticism.”

  • Good news on chemical security

    There’s been some good news from Congress recently about Chemical Facility Anti-Terrorism Standards, or CFATS. The National Association of Manufacturers reports:

    The Senate last week passed H.R. 2892, the Department of Homeland Security’s appropriations bill, which included a one-year extension of department’s authority over security for chemical facilities potentially threatened by terrorist attacks. This one-year extension helps continue the progress that the agency and chemical industry have made in implementing safety and security regulations adopted in 2007, the Chemical Facility Anti-Terrorism Standards. (CFATS).

    The House has also passed a one-year extension, and the approach is far superior to the permanent legislation passed by the House Homeland Security Committee, H.R. 2868, the Chemical Facility Antiterrorism Act. That seemingly well-intentioned piece of legislation would U.S. production and storage of chemicals more burdensome and costly while providing no benefit public safety or national security.

    Bill Allmond, vice president of government relations at the Society of Chemical Manufacturers and Affiliates (SOCMA), put it well: “As we have argued for the past several months, Congress needs to address the October 2009 CFATS deadline expeditiously. Because the House appears, so far, to be more interested in passing controversial amendments like inherently safer technology (IST) to the existing regulations rather than make the rules permanent, this extension is the most responsible action.”

    Link to original story: Chemical Security: Keeping A Good Start Going. More reporting on this issue may be read by clicking on Chemical Facility Anti-Terrorism Standards.

  • Inherently Safer Technology (IST) not always that

    Currently Congress is considering new regulations for chemical plants — Chemical Facility Anti-Terrorism Standards or CFATS — that will, if enacted, require substitution of technologies believed to be less vulnerable to terrorist attack.

    These regulations would affect facilities in addition to those we usually picture when thinking of chemical plants. The Wichita water treatment plant, for example, could be affected.

    The problem is that chemical manufacturing and processing is a complicated matter, and mandates that force the use of one chemical instead of another can have consequences that lead to less safety.

    An example of this may be found in the study Petroleum Refiners & Inherently Safer Technology: The Realities of Hydrofluoric and Sulfuric Acid. (I recommend reading the executive summary.) It’s from the National Petrochemical & Refiners Association, a national trade association.

    Proponents of IST would like oil refineries to switch to sulfuric acid as a safer alternative to hydrofluoric acid. This sounds like a reasonable measure, until you dig a little deeper. Then, you’ll find this:

    The alkylation process takes roughly 250 times more sulfuric acid than hydrofluoric acid to achieve the same result; therefore, a forced switch to sulfuric acid would result in a significant increase in transportation and transfer of the substance. For a 10,000 barrel per day alkylation unit, this equates to one to two truckloads of hydrofluoric acid delivered to the refinery each month, compared to three to four truckloads of regenerated sulfuric acid coming in and three to four truckloads of spent sulfuric acid going out each day.

    This is an example of how seemingly small shifts in technology can have a big impact. In this case, many more trucks carrying a still-dangerous acid would be on our roads and highways.

    There’s also a cost consideration: “A mandate for a refinery to switch from hydrofluoric acid to sulfuric acid will result in capital and design costs between $45 and $150 million dollars per refinery and an increase in operating costs of between 200 and 400 percent.”

    As all refineries would face these costs, it’s very likely that these costs would be passed on to consumers. Except: foreign refiners would not be subject to these expensive technology requirements. This raises the possibility of the United States importing gasoline in large quantities — an unintended consequence that I don’t believe Congress intends.

  • Homeland Security may impose new regulations on agriculture

    At the Kansas Meadowlark, there’s some video about Chemical facility anti-terrorism standards.

    The video is from recent Congressional hearings, and is valuable for its explanation of Inherently Safer Technologies, or IST. Click on Homeland Security may impose new regulations on agriculture for the video and commentary.

  • Environmental myths of the Left

    One of the powerful stories radical environmentalists — or any environmentalists for that matter — tell is how the river in Cleveland caught on fire. Water burning: that’s a real environmental disaster. Government must step in and do something!

    Today the Competitive Enterprise Institute tells the true story. It turns out that it was not capitalism gone wild that caused the fire, but too much government and lack of property rights.

    Progressivism, Not Capitalism, to Blame for Cleveland River Fire

    Washington, D.C., June 22, 2009 — Today is the 40th Anniversary of the famous Cuyahoga river fire in Cleveland, Ohio. The U.S. Environmental Protection Agency is celebrating the anniversary, because it “led to positive results, including creation of the U.S. Environmental Protection Agency and passage of major environmental laws such as the Clean Water Act in 1972 [which meant] we paid attention to how much pollution manufacturers were putting into waterways like the Cuyahoga. The legislation set limits on pollution, and gave EPA the power to fine industry for violating those limits.”

    Yet this received wisdom mischaracterizes what happened in 1969 and the reaction to it. Thanks to the work of free-market environmental scholars like Prof. Jonathan Adler of Case Western University (a former CEI scholar), we know the truth about the Cuyahoga River, which includes facts like:

    • The fire of 1969 was not regarded as a big deal in Cleveland. The Cleveland Plain-Dealer covered it in 5 paragraphs on page 11 and firefighters were quoted as calling the blaze “unremarkable.”
    • The fire was under control within 30 minutes and no TV crews made it there on time. The images most people remember were stock images of an earlier fire in 1952.
    • Local industry had in fact been trying to get the river cleaned up for decades. A paper company had sued to prevent the city dumping sewage into the river as early as 1936. A real estate company actually won a victory in such an attempt in 1965, but this was overturned by the courts.
    • What prevented clean-up was government control. The City of Cleveland claimed a “prescriptive right” to use the river as a communal dumping ground. The State of Ohio operated a permit system that encouraged using the river that way.
    • Cleanup actually started after the 1952 fire, with fish reappearing in 1959, although this was delayed because of state and local government control over the river.

    Competitive Enterprise Institute Senior Fellow Iain Murray wrote about the Cuyahoga River Fire in his 2008 book, The Really Inconvenient Truths: Seven Environmental Catastrophes Liberals Don’t Want You to Know About-Because They Helped Cause Them. Murray said “the Cuyahoga River Fire of 1969 is an environmentalist myth. It is a myth because it was a minor incident, and it is a myth because it actually demonstrated government’s role in environmental degradation.”

    Murray added that “real riparian property rights would have stopped the fires from ever happening. You don’t spit on your own doorstep. Instead, Cleveland declared common ownership and invited spitting.”

  • In the world of chemical security, the real world

    A post on a blog sponsored by the National Association of Manufacturers explains a few of the problems with the proposed Chemical facility anti-terrorism standards legislation now making its way through Congress.

    One of the issues mentioned in the post In the World of Chemical Security, the Real World is the threat of excessive litigation:

    “But there are problems with the proposals, as he makes clear. He cites the ‘private right of action,’ i.e., encouraging litigation against companies as a parallel regulatory process.”

    Unlike environmental statutes, CFATS is not a series of prescriptive statutory measures with which compliance is mandatory, like emission standards or discharge limitations, and therefore it is much more difficult for an outsider — whether it be a citizen or judge — to ascertain if a standard is being met or to decide what needs to be done to address an alleged deficiency.

  • Congress could give government bureaucrats more control of farms and industry

    The Kansas Meadowlark blog has a detailed post that explains some of the harm to agriculture that proposed legislation — chemical facility anti-terrorism standards — could cause.

    The post also contains a section of helpful related links. Click on Congress could give government bureaucrats more control of farms and industry to read.

  • Current chemical security regulations should be reauthorized

    Currently two committees in the United States House of Representatives are considering legislation that would harm a vital American industry.

    This industry is already regulated, and the regulations have accomplished their goal. As explained by the Texas Chemical Council:

    The current chemical security regulations are enforced by the Department of Homeland Security, which has clear authority to inspect facilities and apply strong penalties for non-compliance. Since the regulations have been in place, not one incident as a result of terrorism has occurred. These regulations have been effective. Removing the sunset date and making the chemical security regulations permanent would provide the certainty needed to both protect citizens and support our nation’s economic recovery.

    The bill, H.R. 2868, is known as Chemical facility anti-terrorism standards. More information from the Texas Chemical Council is below.

    (This is a Scribd document. Click on the rectangle at the right of the document’s title bar to get a full-screen view.)

    Current chemical security regulations should be reauthorized By Hector Rivero, President & CEO, Texas Chemical Council Americans should take note of the Chemical Facility Anti-terrorism Act being debated in Congress. At a time when millions have already lost their jobs, the Chemical Facility Anti-terrorism Act (HR 2868) would force more people out of work by imposing needless and harmful regulations on American industry. It would also raise prices for many everyday products, including food, water, pharmaceutical drugs, fertilizers and energy. Securing chemical facilities against deliberate attack is crucial to protecting Americans. The fact is that since 2006, clear and comprehensive chemical security regulations have been in place. Those regulations secure everything from chemical facilities to warehouses and university labs. The rules require facilities to address a wide range of threats, from preventing a bomb-laden car from reaching a target to preventing theft or diversion of materials from a site. The current chemical security regulations are enforced by the Department of Homeland Security, which has clear authority to inspect facilities and apply strong penalties for noncompliance. Since the regulations have been in place, not one incident as a result of terrorism has occurred. These regulations have been effective. Removing the sunset date and making the chemical security regulations permanent would provide the certainty needed to both protect citizens and support our nation’s economic recovery. Proposed legislation poses threats Legislation being proposed by Congress should concern us all. It would create overlapping and conflicting security requirements that will cause disruptions of federal security standards, increase government red tape, and create more economic instability. The proposed regulations also go beyond security protections by placing mandates on American manufacturers as to which products and process they use. These mandates will be imposed without any regard for practicality, availability or cost. If current provisions of the proposed bill are implemented, unemployment will shoot even higher and consumers may see prices for everyday consumer products skyrocket. The chemical industry understands the importance of operating safe and secure manufacturing facilities. However, this can be accomplished without compromising our economic security.