The President’s Own Dumb Rules

While red tape is rising under his watch, President Barack Obama promised recently in a Wall Street Journal op-ed to undertake a grand review of economic regulation in the United States and get rid of rules that “are not worth the cost, or that are just plain dumb.”

Yet he has added plenty of dumb regulations himself. The mandates in the president’s health reform act are among the most blatantly uneconomical of the many regulations enacted during the last two years. The individual insurance mandate is an affront to individual liberty unprecedented in American history. The federal government has never before forced people to purchase any product for their own good — at the risk of a penalty. The fine imposed by the Internal Revenue Service for not buying insurance escalates from $95 or 1 percent of taxable income in 2014 to $695 or 2.5 percent of taxable income in 2016.

Subsidies are provided on the other hand for people who can’t afford insurance. There will also be an employer mandate, requiring companies that employ fifty people or more to provide health benefits or face a fine of $2,000 per worker. Already major corporations are considering dropping their health care coverage because paying the penalty could be cheaper. Small businesses will think twice about expanding because of the massive financial burden imposed on them if they employ more than forty-nine people.

Both mandates are premised upon the notion that government has not only a right to interfere in people’s health care but also a responsibility to ensure that all its citizens have proper health insurance.

This is not true. In a free society, health care cannot be a right because it requires that others provide it — free of charge, if need be. Granting people a “right” to health care invariably negates the rights of health care providers. The new health care statutes further curtail the freedoms of private health insurers and are a major impediment to competition, prohibiting insurance companies from operating freely across state lines. The law forces insurers to:

Cover everyone, regardless of whether they might have preexisting conditions;

Cover children up to the age of 26 under their parents’ insurance plan;

Allocate a set percentage of revenues to patient care.

Starting in 2014, the law also requires insurers to offer a basic plan that covers:

Ambulatory patient services and emergency services and hospitalization;

Maternity and newborn care;

Mental health and substance use disorder services;

Pediatric services, including oral and vision care;

Prescription drugs;

Preventive and wellness services and chronic disease management;

Rehabilitative and habilitative services and devices.

Do you want to insure yourself against medical catastrophe alone? Impossible. Are you male or simply not planning to have children? Doesn’t matter. Are you quite confident that you’ll never have to recover from substance abuse? Too bad!

These insurance requirements violate the rights both of insurance companies and of their clients, who should be free to insure themselves against whatever they like. Similar government mandated basic insurance plans exist in other countries. While they start out covering “basics,” lawmakers usually can’t resist expanding their scope year after year, driving up health insurance costs for consumers in the process.

There are many more dumb regulations in the Dodd-Frank financial reform bill. Among them is the creation of a Consumer Financial Protection Bureau designed to protect consumers from “unfair, deceptive and abusive” business practices. While the bill does not define “unfair, deceptive and abusive” practices, the bureau will be empowered to create and enforce regulations on all financial products, including credit cards, loans and mortgages. Although ensconced within the Federal Reserve, the agency will act independently. With potentially far reaching powers and a troubling lack of oversight, this consumer protection bureau will add to regulatory uncertainty in financial markets and further undermine the freedoms of banks and their clients.

The Durbin Amendment to the financial reform law will allow the Federal Reserve to regulate the fees that banks may charge for processing debit card purchases. The amendment prescribes that such fees must be “reasonable” and “proportional” — without defining what that means. In anticipation, major financial institutions are already increasing costs elsewhere to offset the likely expense of “reasonable” prices. Before Dodd-Frank, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 imposed federal restrictions on the terms and conditions of credit card services, requiring, among other things, that:

Credit card provider allow for a minimum of twenty-one days for bills to be paid;

Credit card providers lower the interest rates of clients who have paid their bills on time for six months in a row;

Gift cards and gift certificates remain valid for no fewer than five years.

By restricting the ability of financial firms to cover credit risks, the regulations have already caused higher interest rates and fees. This especially hurts small businessowners and low income families who heavily rely on credit — the very people supposed to be protected by the law.

There are many more regulations enacted under President Obama’s watch, including new Environmental Protection Agency limits on carbon dioxide emissions; the Renewable Fuel Standards, which prescribe that a particular measure of “renewable fuels” be blended into transportation fuel; and “network neutrality” regulations adopted by the Federal Communications Commission, which infringe upon the rights of private enterprises and actually harm consumers far more than they protect them.

If the president is serious about rooting out “dumb” rules, he doesn’t have to look far to find some.

This article originally appeared in the Mises Daily, March 1, 2011.

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