Saturday, March 27, 2010

Making a Profit on Health Care -- AT&T Style

AT&T and a few other companies (AK Steel Corporation, Caterpillar, Deere and Co., and Valero Energy) have recently said that the new health care law "would raise their expenses," and AT&T said they might have cut back on health benefits for workers.

Here's the crux of the problem for the companies: Previously, the federal government would provide subsidies to cover 28% of what the companies paid on medicare prescriptions (for their retired workers) and the companies could deduct the total of their expenditures on these prescriptions from their taxable income -- including what they already got reimbursed for. Essentially, they got to double-dip in this regard.

The new health care law closes this loop hole and states that companies will still receive subsidies to cover 28% of what they spend on prescriptions, but they will be allowed to deduct only 72% of what they spend from their taxable income. In other words, they won't get the subsidy and get to deduct it from their taxable income.

Sorry, but I don't think the corporations are going to gain my sympathy on this one -- especially AT&T, which earned more than $120 billion in consolated revenue in 2009.

Tuesday, March 23, 2010

Capitalists against free-marketeers: Restaurants vs. Free Enterprise Groups

I was reading the New York Times and came across this article that epitomizes the issue that I have tried to highlight in this blog: capitalists favoring government intervention even when free market adherents oppose it.

Check out this article:

The article discusses a little noticed measure in the new health care bill that requires restaurant chains to provide calorie information on their menu boards, including drive-through menus.

Take a look. The 8th and 9th paragraphs (which begins "The measure was approved by Congress. . .") explain that the restaurant industry likes the new measure, while two paragraphs later we read that "some free enterprise groups" opposed the measure.

Monday, March 22, 2010

Health Care Reform: Clinton's failure, Obama's success

On the day after the passage of historic health care policy in the US House, let me try to wrap up this discussion of recent health care reform in the US.

So, why did Clinton’s health care reform fail in 1994? Throughout most of the 1990s – even in the fall of 1993 – public opinion polls showed that the majority of Americans favored some kind of significant government role in health care. Leading up to the 1992 presidential election, even Republican candidates expressed support of health care reform that included an increased government role (though a smaller role than envisioned by most Democrats).

And, as we have seen, a cross-class coalition that included workers, unions, and many businesses and trade organizations supported an expansion of government activity in health care. Again, large businesses who had long offered their employees health insurance saw their costs (i.e., premiums) rise alarmingly during the 1980s. They turned to the federal government to regulate health insurance, create cost controls, and spread the costs of providing health care.

Remember, the U.S. Chamber of Commerce supported government-mandated employer health benefits, as did many large corporations, including Bethlehem Steel, Lockheed, Chrysler, Xerox, and Westinghouse. Not only did these businesses want to control premiums, but many of them also wanted to correct what they saw as an unfair situation: most small businesses did not provide health insurance for employees; these employees were often married (or otherwise related) to someone who worked for a medium- or large-business that provided health insurance for that employee’s family. Many medium- and large-businesses saw this as a subsidy that reduced the labor costs of small businesses (and put some large businesses at a competitive disadvantage in the global market).

So we return to the question at hand: Why did the Clinton health care proposal fail? There were obviously many immediate political factors: intense partisan opposition, a strong effort by the insurance lobby, and a “combative and secretive strategy” by the Clinton administration, among others. Such factors, no doubt, contributed to problems.

But these answers overlook a key factor: the expansion of HMOs began to effectively rein in rising health care costs. The annual growth in private health insurance premiums (i.e., the cost to employers) fell from 17% in 1990 to 10% in 1992, 8% in 1993, and -1% in 1994. This sent a signal to many businesses that had favored – and even advocated for – health care reform that the insurance industry was reforming itself and controlling costs through managed care.

Consequently, these businesses backed off from their previous advocacy for reform. This loss of strong support was very significant and affected the political debate, resources behind the political battle, and ultimately affected public opinion because some of the voices in favor of an expanded government role (including an employer mandate to provide employees with health insurance) weakened or disappeared.

What does all of this mean for the passage of health care reform under Obama? Obviously, there were notable partisan battles, parliamentary strategies, resistance from the insurance lobby, questions about the administration’s strategy, and so forth. There are always these kinds of issues.

But beneath this level of partisan politics are more fundamental dynamics. I have not researched the recent battle over health care reform and therefore can’t point to the underlying coalitions. Nevertheless, they are there.

For example, here is one telling link between Clinton’s failed attempt and Obama’s success. HMOs controlled health costs from the 1994 thru 1997, when the cost of insurance premiums did not rise more than 2.5% in any year. A few years later, however, health care costs were rising rapidly once again. In 2000, the growth in health insurance premiums was at 10%. The ability of HMOs to contain costs began to falter. In that context, what groups had been hit hardest by rising premiums? Maybe some businesses once again had an interest in containing health care costs.

One thing is for sure: The Obama health care reform is not about socialism. But it is very likely about capitalism. And in capitalism – in a market economy – based as it is on competition and the drive for profit, some segments of capital will seek national policies that protect them from competition or even from the market, itself, in an effort to secure “adequate” profits (which is always relative, of course).

This can be seen in Clinton’s effort at health care reform, in the history of US agricultural policy, as well as in labor policy, social security, and many other policy arenas.

A full understanding of recent efforts at health care reform requires us to move beyond much of the current political debate.

Monday, March 1, 2010

Health Care Reform: Is it actually "socialism"?

Okay, I'm way behind in posting this. I actually had most of this written last November, but life took me on a detour. I have a little energy tonight (surprisingly, my three-year-old son didn't sap all of it), so I'm posting.

With the U.S. Congress (and public) still embroiled over the health care bill, it’s time that I finally get around to posting about this perspective on national policies accused of being socialist.

Here’s the tie-in with agricultural policy, as I see it: Supply management policy – with its regulation of production and prices – was not about socialism. Instead, that policy was the outcome of competing political-economic interests trying to ensure profitable production.

In particular, southern planters growing cotton were hardly socialists. They were simply large landowners trying to cope with a chronic problem of overproduction and low prices. They saw supply management policy as protection against vagaries of the market economy. They were “Capitalists Against Markets.” (That is the title of Peter Swenson’s book comparing national policy formation in the US and Sweden.)

This same kind of analysis is useful in exploring health care reform. Take, for example, Clinton’s attempted health care reform in 1993-94. Two health care issues became central in the early 1990s: universal coverage and cost containment. (Sound familiar?) Health care costs were rising, and tens of millions of people were uninsured. But, these conditions had existed to a greater or lesser extent for decades. Something else put health care reform at the forefront of US politics in the early 1990s.

An important coalition emerged to support an increased government role in health care: a cross-class coalition between workers and industry. Labor unions and many large businesses (such as Bethlehem Steel, Lockheed, Chrysler, Xerox, and Westinghouse) formed the National Leadership Coalition for Health Care Reform (NLCHCR), which was a leading advocate for health care reform at the time. This organization advocated for government-mandated employer-provided health insurance. (That’s right: many businesses were in favor of some kind of national health care system.)

In addition, more than half of CEO’s for Fortune 500 companies favored a government mandate for all employers to provide health benefits. And, the U.S. Chamber of Commerce supported government-mandated employer health benefits.

Why did some business advocate expanded government action in health care?

First, rising health costs fell heavily on business, especially large employers. In 1988, for example, Chrysler famously spent more on health care than on steel: $600 million per year on health care; $600 per car.

Second, there were an increasing number of strikes and labor conflicts over health care.

Third, international competition likewise encouraged some US companies to favor an expanded role for the government in health care, because other nations – Germany, Japan, France, etc. – provide health care for all workers.

In the early 1990s, then, health care reform was not really about socialists pushing for government control of the market economy. Instead, there were large companies whose economic interest in controlling health care costs – especially insurance premiums – prompted them to favor a greater role for government in health care.

Why, then, did Clinton’s health care reform proposal fail? See my next post, which I hope will not take another three or four months...

By the way, much of the information for this post came from an article written by Peter Swenson and Scott Greer, "Foul Weather Friends: Big Business and Health Care Reform in the 1990s in Historical Perspective," in Journal of Health Politics, Policy and Law, Vol. 27, No. 4, August 2002, pages 605-638.