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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 negotiations.

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 article.

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 future.


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