Companies of all Sizes fear National Health Care

Obama's massive health care proposal has far reaching implications, many of which we are now only beginning to learn about. One of the biggest areas of concern is the cost to businesses of every size. Higher government costs on business leads to several negative effects, including these businesses becoming less competitive (or leaving the US to avoid the costs), laying off employees to avoid certain regulatory thresholds or simply to remain competitive, and higher prices for consumers (since businesses will be forced to pass on the higher costs of doing business).

The Associated Press is reporting that "In the first two days after the law was signed, three major companies — Deere & Co., Caterpillar Inc. and Valero Energy — said they expect to take a total hit of $265 million to account for smaller tax deductions in the future. With more than 3,500 companies now getting the tax break as an incentive to keep providing coverage, others are almost certain to announce similar cost increases in the weeks ahead as they sort out the impact of the change. Figuring out what it will mean for retirees will take longer, but analysts said as many as 2 million could lose the prescription drug coverage provided by their former employers, leaving them to enroll in Medicare's program."

One of the first and most important rules I learned in economics was this little concept called the "secondary effects." Public policy is virtually always full of good intentions, but they are often damaged by the unintended consequences. The government thought they were going to be able to get businesses to pick up the load of its socialized health care programs. Unfortunately, many of these businesses will not be able to (nor have to), because they will be exempt due to their losses. These results are similar to the Massachusetts experience with government health care, where there was suppose to be huge health insurance relief by business, that instead resulted in a large increase in government coverage and the costs that come with such.

The problem does not end with big businesses though. According to the Pittsburgh Business Journal, "Employers with 50+ workers that do not offer health insurance will pay $2,000 per full-time worker (not including the first 30 workers) if any of their employees purchases government-subsidized coverage through an exchange. Employers with 50+ workers that offer unaffordable coverage or coverage that does not cover at least 60 percent of allowable costs will pay $3,000 for any employee who receives a tax credit in the exchange" Again, myopic policy makers who do not understand basic human nature, do not see the obvious consequence of these type of policies. These still small, but aspiring to be larger, businesses will simply layoff enough employees to make sure they fall beneath the 50+ threshold. They will likely make up the loss through outsourcing and vendors, including the utilization of companies overseas. This latter result is something people of most political stripes hate to see happen, but will be the natural result of Obamacare.

Currently the US is in the middle of what is being called the "Great Recession," with the highest unemployment numbers in over a quarter of a century. The Obama administration's irresponsible health care policy could move the country closer to seeing the original Great Depression as the second worse economy in US history. Actually, the ones who should fear Obama's health care policies the most is not the employers, but the people who will ask these companies for a job.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is also host of the Price of Business (M-F at 11 AM on CNN radio). Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Do Health Insurance Companies make too Much?

We are told, daily, about the "exploitative" profits being made by the large health insurance companies in the form of premiums. The "huge" amount of dollars collected should be grounds for the massive take over of health care by the government, we are often told by the media. Politicians discuss these companies like preachers from the pulpit, using terms such as "immoral" and "disgusting" as measures of the amounts they make. According to the Associated Press, the real numbers show a different story.

Health insurance profit margins run around 6 percent, give or take a point or two. That is very small compared to other forms of insurance and below the standard 7 percent most of us learned in economic classes as the corporate average for profits.

Here are some of the points from the AP article:

• Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. It is not at all surprising that other health sectors did far better -- drugs and medical products and services were both in the top 10.
  
• Doing better still -- at the top of the list -- network and other communications equipment, at 20.4 percent; the railroads brought in a 12.6 percent profit margin.
  
• HealthSpring, the best performer in the health insurance industry, posted 5.4 percent; that mark proved less than Tupperware, Clorox bleach and Molson and Coors beers.
  
• UnitedHealth Group, reporting third quarter results last week, saw a better picture; it obtained a 5 percent profit margin on an 8 percent growth in revenue.


• We have been told that the Bush Administration provided the "hot years" for health insurance companies. Reality, again, shows something else as industry's overall profits grew only 8.8 percent from 2003 to 2008, and its margins year to year, from 2005 forward, never cracked 8 percent.
  
• So what companies were the real performers? Surprisingly the list includes Tupperware Brands, 7.5 percent; Yahoo, 5.9 percent; Hershey, 6.1 percent; Clorox, 8.7 percent; Molson Coors Brewing, 8.1 percent; construction and farm machinery, 5 percent; Yum Brands 8.5 percent.

I personally do not care how much a business makes as long as its profits are legal and they face competition. The Obama Administration likes to complain about the health insurance industry "monopoly" on health care, as if we were all dealing with a single company. In light of the fact health insurance companies are making considerably less than other industries, it is clear that these companies do not enjoy anything like a monopoly. We will not, however, be able to say the same about Obama's public option.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

Remember Bennigan's?

Back in the 1980s there were certain restaurants that I seemed to hit with frequency. Steak and Ale and Bennigan's were among the favorites. Great for quick and easy lunch with the latter guaranteeing their meals will be at your table within five minutes of the order (regardless if your food was fully cooked) or it was free.

Somewhere along the way I stopped going. In fact, I can't remember the last time I visited either of these restaurants. To me, their decline was evident and has been chronic for quite some time. The quality of the food was in decline, the restaurants were not very clean, service was slow and inconsistent, and they simply weren't what they use to be.

The Associated Press today revealed the following today: "Restaurant chains Bennigan's and Steak & Ale have filed for Chapter 7 bankruptcy protection and will shut their doors. The companies filed for bankruptcy protection in the Eastern District of Texas. Their parent company — privately held Metromedia Restaurant Group — is based in Plano, Texas.
In a Chapter 7 bankruptcy filing, a company seeks to liquidate its assets and shut down.
In the filing, the company indicated that it has up to 49 creditors. It said it will have no funds left after administrative expenses are paid to repay its creditors. Neither Bennigan's nor the Metromedia Restaurant Group returned calls for comment. "

Their decline could be attributed to several factors. People may have grown to desire "real" neighborhood restaurants instead of chains that try to resemble such. It could be because of the difficult time restaurants are facing in general with rising prices due to the high price of fuel and the reluctance many people have to spend money or gas on such places.

Whatever the causes, it appears clear to me that these restaurants died long before the Associated Press wrote the above obituary.

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Kevin Price is Host of the Houston Business Show (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.