Sacrificing Business for Political Gain
[October 7, 2003]
By S. M. Oliva
By Nicholas Provenzo
California Governor Gray Davis should be recalled. There
is one simple argument in favor of this proposition: Davis’s continuance
in office will harm the rights of California’s citizens. Since the recall
effort was first launched, the governor and his allies in the
Democratic-controlled state legislature have waged an unapologetic war on
the economic rights of Californians, especially those who dare to operate
a business within the Golden State’s borders.
Yesterday Davis signed into law a bill forcing all but
the smallest California businesses to provide health insurance for their
employees. This was a bribe, pure and simple, to reward the state’s labor
unions for backing Davis in the recall battle. The unions are a major
contributor to California’s well-documented economic problems. Both the
public sector, which spends money with reckless abandon, and the private
sector, which is crushed under the weight of state regulatory mandates,
are in financial distress because of the illegitimate political power
exercised by unions.
The health insurance bill is a naked attack on economic
rights. Businesses have no more a moral obligation to provide their
employees’ health insurance than they do their food or clothing.
Unfortunately, a half-century of irrational public policy has convinced
the majority of Americans that employer-provided health insurance is a
standard business practice, if not a basic right. Public policy has also
distorted the healthcare market by creating waves of unnecessary
regulatory costs, then insulating consumers from these costs by placing
blame on innocent producers and service providers.
In a sense, California’s new healthcare mandate is a
microcosm of the state’s economic paralysis. California’s trouble stems
from a simple source: The state spent more money than it took in. Why did
the state overspend? Because spending decisions were made in consultation
with unions and other interest groups with no incentive to constrain
spending. For example, the teachers unions constantly demand more money
and resources for schools because there’s no market force keeping them in
check. Since education is a “public good,” spending arguments are made in
terms of need rather than free market supply-and-demand.
The most appalling aspect of California’s health
insurance mandate is that it was passed with the enthusiastic support of
the California Medical Association (CMA), the trade group representing the
state’s physicians. CMA’s executive vice president said “[t]his law will
save lives and money by providing one million Californians with health
coverage and access to medical care”. CMA’s website argued that the forced
insurance mandate “is fair to business because it levels the playing field
between prudent employers who provide insurance and their freeloading
competitors who do not”. This is utter nonsense. Businesses that chose not
pay for their employees’ health insurance are making an economic decision
based on self-interest. They are not “freeloading” in any sense. Quite the
contrary, it is employees who are freeloading by using the state to force
their employers to provide benefits outside the context of voluntary
Nor will the California law “save money”. First and
foremost, this bill shifts existing costs from employees to employers.
Second, it will likely increase costs across-the-board, as the already
overwhelmed managed care system struggles to deal with an influx of new
charges. California’s insurance system, like that of most states, is
highly regulated to discourage competition. Insurers must cover all
patients and most ailments, and employers cannot obtain cheaper or better
coverage from out-of-state insurers. All this regulation increases the
cost to employers—a California business can pay upwards of $100,000 to
cover just five employees, according to a recent National Review Online
It doesn’t take an economist to realize these costs will
force employers to cut back on the number of employees they retain.
Ultimately spending funds for one service--health insurance--will lead to
decreased spending for another service--employment. Governor Davis and his
union allies won’t recognize that argument, however, because as wards of
the state they are accustomed to consuming without producing. A union that
wants more of something will seek political action to get what they want
rather than competing for it in the marketplace.
CMA is the last organization that should be backing the
Davis-unions scheme. Physicians will be one of the groups that suffer as
the result of this insurance mandate. For the past two years, the Bush
administration has used the antitrust laws to prevent physicians from
jointly contracting with managed care plans. The Federal Trade Commission
claims such activities amount to price-fixing by the doctors. In truth,
the FTC is merely imposing a price control on physicians to benefit
politically-favored managed care firms. Physicians know this. In fact, the
CMA recently testified before the FTC in opposition to this policy,
arguing the application of antitrust rules are forcing physicians into
bankruptcy and harming consumer welfare. Yet California’s insurance
mandate will only strengthen the hand of the FTC in harming physician
interests. After all, when insurance costs rise as a result of the
mandate, managed care providers will argue “physicians are demanding too
much money” for services. Accordingly, the FTC will drum-up price-fixing
charges to compel doctors to accept lower fees in the “public interest”.
By siding with unions and regulators, CMA has squandered
any credibility in defending its own members from future attacks. The
“freeloading” businesses CMA attacks now will soon give way to the
“freeloading” physicians who put their self-interest ahead of the needs of
the uninsured and underserved patients. In the end, the politicians and
their allies will be the only beneficiaries, since they’ll have a whole
new group of economic producers to bleed.
Gray Davis is obviously not the sole cause of
California’s war on the rights of businesses. But he is the current
figurehead and principal beneficiary of this most recent political attack.
As such, he must be made an example of. If the voters fail to recall Davis
in Tuesday’s election, they will be sanctioning bribery and wealth
destruction as legitimate extensions of state power. Should that happen,
California will have no hope of achieving economic recovery in the near
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