Opinion: Daily Journal

Practical Realities of Regulation

RALEIGH – We free-market types are often found arguing that government regulation imposes significant but often invisible costs. Using the state to compel individuals or firms to do something, or not do something, is essentially a form of taxation that is paid either through cash or through foregone opportunities – but the tax isn’t collected as on-the-books revenue, so its costs are underappreciated.

The National Center for Policy Analysis in Dallas posted a good example of this phenomenon on its Idea House site today. Summarizing a study from the National Bureau of Economic Research, the piece stated that every 10 percent increase in health insurance costs reduces the chances of being employed by 1.6 percent. In part, what seems to be going on here is that employers reduce their full-time employees in favor of part-timers to whom they do not have to pay non-wage benefits.

I have two points to make about this. First, regulation plays a significant role in increasing the cost of health insurance. Mandated benefits – forcing insurers to cover specific treatments or illnesses – leads to higher utilization, since enrollees will tend to use free or largely subsidized services even if their marginal medical benefit is rather low. Expected these higher claims payments, insurers must increase premiums to keep the plans solvent. The result is more expensive insurance for some employees and, well, more expensive insurance for other employees – the ones who lose health coverage bought collectively at the workplace and must venture out on the individual health-care market.

As I have previously observed, North Carolina has an egregious record when it comes to benefit mandates. Among the Southern states, North Carolina ranks 4th in the number of insurance mandates (with 45), while nearby states such as Tennessee (38) and South Carolina (28) impose fewer. If the NBER paper is correct, then, some of the joblessness in our state is attributable to these regulations, most imposed by acts of the General Assembly. Thanks a lot, ladies and gentlemen.

My second point is that these regulatory effects are impossible to show without using some kind of statistical modeling, such as regression equations that allow you to hold some variables constant in order to look for correlations between others. You may not be able to see physically the effects of an intrusive regulation – no one in the unemployment line can say for certain that he or she is the victim of a health-insurance mandate – but that doesn’t make such effects theoretical.

They are practical realities, unfortunately.

Hood is president of the John Locke Foundation.