Using Health Care Regulation to Pick Winners and Losers

Companies are continuing to figure out how to cope with the new health care regulations, many of which come into effect this year. Adding further confusion to the process, the Department of Health and Human Services (HHS) is granting waivers to selected companies for some portions of the law. Essentially, the federal government is picking winners and losers by exempting some companies from regulation, and not others. This policy is unfair and has many unintended consequences. 

"It's not hard to connect the dots," Karl Rove argues in an editorial recently published in the Wall Street Journal. "The Obama administration is using waivers to reward friends. On the flip side, business executives will be discouraged from contributing to the president's opponents or from taking any other steps that might upset the White House or its political appointees at HHS."

The practice of picking and choosing is disadvantageous for overall welfare because it increases the cost of doing business for non-favored groups. This places them at an artificial competitive disadvantage and makes it difficult to compete against groups that enjoy the government's favor. Adhering to the new healthcosts — and picking up the tab for those that are exempted from regulation — will increase the cost of labor to an employer considerably. This new law will likely increase unemployment — particularly among those with low incomes.

Instead of competing in the market on an even playing field, short-sighted and self-serving groups petition the government to tilt the field in their favor. This negatively affects the economic output of a region, since these companies could otherwise be contributing to productive work.

Furthermore, providing special exemptions to some is a tacit admission that the cost of providing health care under the new regulations is prohibitively high. From the perspective of overall welfare, it would be better if the federal government enacted a policy that favored no groups over others. Better yet, the federal government should repeal the legislation before its negative consequences become permanent, and instead restore freedom for individuals in their healthcare decisions. 

Government should focus on providing the basic institutions that foster reliable market exchange (e.g., enforcing contracts, backing currency, etc.), instead of distorting the playing field by giving special favors to some and not others.

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