Olympia Business Watch

Obama on Health Care

Barring the most unforeseen circumstances imaginable, either Barack Obama or John McCain will be the next president of the United States. With that in mind, it behooves voters to familiarize themselves with both candidates' positions on health care because the differences could not be greater.

Since Obama appears to be somewhat ahead in the polls, it probably makes sense to start with his proposals. Health care expert Bob Laszewski sums up Obama's approach nicely:

....continue down the same incremental line with health care reform--building on the employer-based system where the employer provides so many of us with generous defined benefit health insurance plans that the employer continues to pay most of the cost of no matter how expensive they are....

Obama's plan places heavy burdens on the employer in the name of "universal coverage." According to economist John Goodman:

The Obama plan would subject all employers to a "pay-or-play" mandate-imposing a tax on those who do not provide health insurance for their employees. Following Commonwealth [the Commonwealth Fund - a private foundation that produced a health plan similar to Obama's albeit with much more detail], we assume this would be a payroll tax of 7% of earnings up to $1.25 per hour on employers who fail to pay at least 75% of the premium for a minimum package of benefits.

Were this provision enacted today, it would immediately affect the 40% of small employers who do not offer coverage, the 30 million people in families who have workforce participation, but no health insurance, and millions of Medicaid enrollees who have a workforce connection-to say nothing of all the employers who currently pay less than 75% and/or have plans that are insufficiently generous.

Obama's pay-or-play mandate would come along with an offer, including an income-related subsidy, for the otherwise uninsured to buy coverage from a National Health Insurance Exchange. Perversely, this would encourage people to drop their current health insurance through their employers and buy their own insurance through the exchange. Since the plan has no individual mandate -- and the Exchange would be community rated and guaranteed issue -- many healthy people would likely drop all insurance coverage and just wait until they get sick before getting insurance. Once they did need insurance, the sky would be the limit at the Exchange, which would have a minimum benefits package, but no maximum benefits cap, all funded courtesy of the taxpayer.

If Obama establishes such a system, don't be surprised if federal health mandates imitate the most expansive mandated coverage we've seen at the state level, potentially including coverage for acupuncture, in vitro fertilization, naturopathy, marriage counseling and the like. Meanwhile, employers would still come out on the short end by paying higher wages instead of premiums along with the pay-or-play fees plus income and payroll tax.

At the same time, according to Goodman:

....health plans would be free to set their own premiums, but they would be required to charge the same premium to all comers. This means the plans would make a profit on healthy enrollees and suffer a loss on less healthy enrollees. Consequently, the plans would have strong financial incentives to attract the healthy and avoid the sick. After enrollment, their incentives would be to over-provide to the healthy (to retain their membership and attract more of them) and under-provide to the sick (to discourage their continued membership and repel others just like them). 

Another troublesome aspect of this plan is the voluntary nature of its health insurance exchange. Numerous voluntary exchanges failed because healthier people can find cheaper insurance outside the exchange. In turn, when the healthy leave the exchange, prices go up for those who have no other insurance option to remain due to their health problems. As prices go up, the healthy leave in ever larger numbers, leading to the final collapse of the exchange.

Along with employers, parents would also face special burdens under the Obama plan, according to Goodman:

Although Obama would allow adults to remain uninsured, he proposes to force parents to insure their children--undoubtedly through a pay-or-play mandate. The problems here are: (1) mandates usually don't work if people have to pay any portion of the premium out of their own pockets, (2) the end result (health care for children) can usually be obtained less expensively through means other than mandated insurance.

To put it simply, parents would faces taxes for having children -- a troubling concept on many levels. Where would that leave so-called "working families?"

Additionally, the Obama plan also expands enrollment in Medicaid and SCHIP, perhaps by as many as 12 million, substantially increasing taxpayer burden without providing improved care. Indeed, an American Cancer Society study found that depending on Medicaid is almost as bad as being uninsured in terms of delays in diagnosis and treatment.

Ultimately, the Obama plan creates two-tiered health care. Inside the Exchange's government run system, services would be substantially inferior to those experienced by the healthier segment of the population who could access private insurance. Meanwhile, funding for this scheme would come from higher tax rates on capital, which would result in lower capital stock and a diminished national income.

Obama's mantra throughout the campaign has been a generalized call for change, but are these really the changes the voters would want? Only time will tell.

Up next: a look at John McCain's health care plan.

 

I-1029 Goes to Court

As anticipated, the legal dispute over I-1029 is now in the hands of the Supreme Court, if it agrees to hear the matter.  The News Tribune's Joe Turner and the Spokesman's Rich Roessler blog it, and Jonathan Bechtle at the Evergreen Freedom Foundation has a copy of the Community Care Coalition's petition and accompanying motion for discretionary review as well as a short summary of the argument.

Energy Solutions for WA?

The latest polling from Moore Insight suggests that Washington voters would rather see the state build a new oil refinery than build a nuclear power plant or drill for oil and gas off the Washington coast.

The telephone survey, conducted July 9-10 with 400 voters statewide, found that of the three options, 64 percent favored a new refinery. Interestingly, 59 percent said they'd favor the development of a new nuclear plant (the margin of error on this was plus or minus 5%).

In his analysis, Moore found the refinery idea polled better with men than women (+48% to +23%) and with those outside Seattle in the Kitsap/Pierce/Snohomish/Thurston county areas (-10% to +45%). Those more positive about nuclear power were eastern Washington residents (male Republicans who consider themselves conservative).

As for offshore drilling, the majority of the support is found outside the central Puget Sound region, among men, voters  65+ who identify themselves as Republicans and conservative.

Talk with Canadian Ambassador the the United States About Importance of Trade

After Canada's Ambassador to the United States, Michael Wilson, spoke to the 800 delegates to the Pacific NorthWest Economic Region (PNWER) summit this morning, I had an opportunity to speak with him and invite him to be the keynote speaker at our Annual Spring Meeting in Spokane next May (2009). We will be issuing him a formal written invitation later this week.

Here's why he would be a great speaker with an important message:

1. He is an excellent speaker and given the importance of trade to our economy and our relations with Canada, it is vital that we refresh ourselves about just how important our relationship is with our neighbor to the North.
2. With the world's attention beginning to focus on the 2010 Winter Games in Vancouver and Whistler, there are a lot of cooperative projects between our two countries and Washington and British Columbia, in particular, that are happening that offer us lots of opportunities.
3. Canada is the largest single export market for 35 states.
4. More than 7 million U.S. jobs are supported by Canada-U.S. trade.
5. Canada buys four times more from the United States than China does---$248.4 billion to $65.2 billion.
6. Canada supplies more crude oil to the United States than Saudi Arabia and Iraq combined--2.4 million barrels a day, amounting to 18% of U.S. imports and 12% of consumption.
7. In 2006, the NAFTA partners' foreign direct investment holdings in North America were worth almost 523.7 billion meaning our economies are interconnected and we must continue the trend in investing in each other's future.

Since Washington is the nation's leading exporting state, it is critically important that we recognize the value of our long-time friendly partnership with Canada and insure that it continues to grow and prosper for both of our benefit.

Don C. Brunell, President (DonB@awb.org)

Court of Appeals Misses on Municipal Tax Uniformity

Division I of the state Court of Appeals has released its decision in Group Health Cooperative v. City of Seattle, a municipal B&O tax case in which AWB submitted an amicus curiae brief.  The taxpayer actually prevailed for the most part in the case but it was an underlying issue that interested us -- the first precedential interpretation of the remedy provision of 2003's landmark municipal tax fairness legislation, EHB 2030. 

Here's what we wrote about EHB 2030 in 2003:

AWB’s tenacious six year effort to bring municipal tax fairness to Washington has finally paid off! EHB 2030 was signed into law by Gov. Gary Locke in early April. The signing of EHB 2030 marks the end of confusing local B&O tax codes, the elimination of the potential for double taxation and the preservation of the rules of fair tax treatment. Soon business taxpayers will be on the receiving end of a long-awaited, model B&O tax ordinance that creates uniformity, certainty, predictability and fairness in local taxation. Introduced by Rep. Lynn Kessler (D-Hoquiam), EHB 2030 ends differing interpretations of tax laws from the state to local level and from city to city. Thanks to this legislation, businesses that operate in multiple cities will no longer be forced to pay double or triple taxes on the same revenue. A long time priority of AWB, the Governor’s Competitiveness Council and the Gates Tax Study Commission is now a reality.

This bill, an executive request bill from then-Governor Gary Locke and Competitiveness Council priority, was enacted over the strenuous opposition of the cities.  One reason?  Section 14 of the bill, or RCW 35.102.140, provided a strong incentive for cities to come into compliance with the uniformity requirement:

A city that has not complied with the requirements of sections 2 through 13 of this act by December 31, 2004, may not impose a tax that is imposed by a city on the privilege of engaging in business activities.

In other words, comply with this law or lose the legislative authorization to impose a B&O tax while out of compliance.  In this case, it was pretty clear the City of Seattle was not complying with one of the provisions of the law relating to refund calculation -- in fact, an e-mail from the city's tax manager obtained through a public records request showed the city was actively thumbing its nose at the 2003 law.

Nevertheless, on this point, the Court of Appeals decided the Legislature couldn't have possibly meant such a draconian remedy for non-compliant cities:

While it is true that the legislative history supports the conclusion that the legislature intended the requirements of [EHB 2030] to be mandatory for cities imposing B&O taxes, there is nothing whatsoever in the legislative history suggesting that the legislature's objective was to impose a retroactive B&O tax revenue "death penalty" on municipalities found to have unwittingly enacted provisions of the model ordinance that were drafted in such a manner so as to be inconsistent with the statute.

Of course it isn't so much the Legislative history as the text of the law itself ("A city that has not complied . . . may not impose a tax . . .") where the Legislature's objective was clear -- and since we helped draft the statute, we felt pretty confident on this point. 

But, this decision is another reminder -- like last month's unemployment insurance decision from the Supreme Court repudiating another major 2003 enactment -- that what seems so clear before the Legislature often looks completely different through the prism of the judiciary.   

 

More Views on I-1029's Legal Status

A few more editorial voices have weighed in on the dispute we've been following on the proper disposition of the Initiative 1029 petitions. 

The Olympian on Sunday finds the initiative "skating on thin legal ice" but mostly editorializes in favor of speedy judicial resolution of the question.

The Spokesman-Review, meanwhile, took the exactly opposite view decrying the potential for a lawsuit and describing the SEIU's failure to designate the petitions correctly as a mere "technical imprecision."

However, the Yakima Herald-Republic joins in today with its view that the initiative shouldn't move forward.

Add to the tally the views of the News Tribune and Seattle P-I (treat the petitions as written) and the Seattle Times (no harm, no foul), it would appear that in the true courts of last resort -- the editorial boards of the state -- I-1029 critics are thus far garnering a majority. 

Negotiating with Political Contributors

Deja vu reading Chris McGann's piece in today's PI describing a GOP complaint about "the appearance of a conflict between the governor's role as both chief negotiator and campaign benefactor."  The complaint involves gambling compacts with tribes but recalls last summer's discussion on this blog of the swelling clout of the public employees' unions, both as political player and bargaining representative:

That's a huge concern," said Don Brunell, president of the Association of Washington Business. "The unions have so much clout, and they're basically funding the people they're bargaining with.

Tough Facts, Tough Law

Privacy vs. truth in a strange workplace drama unfolding in the Portland Police Department.  A police officer lies about a trip for a medical procedure because she fears her co-workers' unsympathetic reaction -- and faces potential firing for the misconduct.  I wonder if, under our state's comparatively strong civil rights (and public employee union) protections, the same scenario would play out in Washington.

On the flip side, our Court of Appeals held last year (in a case on review to the state Supreme Court this fall) that a strong public policy favoring truthful police officers merited overturning a union arbitration award reinstating a police officer terminated for, among other things, an allegation of lying.

Pentagon Upstages Kensington Palace Party---Boeing Gets a Second Chance Against "A Tough Consortium" Including Airbus

We were delighted to hear the Air Force tanker contract will be reopened.  AWB and many of the state's chambers of commerce wrote President Bush, the Air Force and our congressional delegation asking them to take another look at the contract and bidding process.  It just didn't add up.

Now it is good news for Boeing and Washington State that the contract will be rebid.  With state revenues declining, a $35 billion contract could not only extend the jobs on the 767 (or 777) assembly line at Paine Field, but would bring billions to our state's economy and hundreds of millions in state and local tax revenues.

But for Northrop-Grumman-EADS (Airbus parent) the Pentagon's announcement upstaged a Kensington Palace Party to celebrate the contract awarded to them to replace the aging KC135 aerial refuelers, some of which are stationed at Fairchild Air Force Base, Spokane; and, all of which were made in Washington and Kansas.  The shindig was in conjunction with Great Britain's Farnborough International Air show which concluded this last weekend. In fact, Alabama's Gov. Robert Riley even invited astronaut Buzz Aldrin to hoist the celebratory glass of cheer to toast the contract victory.

Well before feeling too comfortable, consider the results of the aircraft deals made at Farnborough.  Airbus did very well in the competition selling 247 planes worth $38.7 billion.  Boeing inked 197 new aircraft worth $23.1 billion-----so Airbus is still darn tough competition.  So, don't expect them to throw in the towel on the tanker contract.

Airbus is also turning out the BIG GUNS---the leaders of Great Britain, France and Germany have contracted President Bush. Those three leaders have clout.  Consider what McClatchy Report Les Blumenthal reported in The News Tribune:

"The White House confirmed Wednesday that British Prime Minister Gordon Brown, French President Nicolas Sarkozy and German Chancellor Angela Merkel talked to Bush about the tanker deal. U.S. relations with France and Germany have improved in recent months. In March, weeks after the Northrop-EADS team won the initial contract, Sarkozy said he would send 700 additional French troops to Afghanistan as Bush was pushing NATO members to become more involved. In June, Germany pledged $653 million in aid to rebuild Afghanistan.Germany, France and Britain also have been increasingly supportive of other Bush administration foreign policy initiatives."

So while the news is good for Boeing, there is a lot of work ahead.   Boeing will have to have a sharp pencil to win this bid and it will need its aerospace workers behind it.  A crippling strike by the machinists, engineers and technical workers would not help win the contract, especially if the labor dispute resulted in a long work stoppage.  Hopefully, the 99% vote by the machinists union to strike is a just a signal to Boeing and our state and nothing more.  A well place shot across the bow of our state's prized aircraft carrier is much different than a direct hit to the engine room.

Don C. Brunell, President (DonB@awb.org)

Is Arnold Ready for A Second Veto of a Single-Payer, Government Run Health Care Program in California?

This posting is from our sister organization, The California Manufacturers and Technology Association, and goes under the category of "What Happens in California STAYS in California!

California State Senator Sheila Kuehl (D-Los Angeles), in another attempt to implement a government-run, single-payer system in California, presented SB 840 in front of the Assembly Appropriations Committee on Wednesday, July 16th.  The bill was originally introduced in 2005 and vetoed by Governor Schwarzenegger.  It would have provided health insurance coverage, administrated by the State, to all California residents.

As currently drafted, SB 840 establishes a commission that will oversee the solvency of the Healthcare Fund and has the authority to implement measures that control cost or increase revenue.  The Legislative Analyst Office (LAO) indicates that the system would be funded with a combination of new tax revenues (deposited in the Healthcare Fund) as well as the redirection of current funding for health care services from federal, state, and local governments.  It concluded, however, that this single-payer proposal would result in a net shortfall of $42 billion in 2011-12 (the first full year of operations) and $46 billion in 2015-16.

SB 840 also requires the new health care system to be operational within two years after the commission determines that there are sufficient resources to implement the program.  The commission has authority for a loan from the General Fund to finance transitional costs (estimated to be $6 million in the first year). The LAO opined that "Any plan to reform the state’s health care system, by the nature of its complexity, will involve financial risk over the long term."

This proposal establishes a defective bureaucracy that will fail at the expense of the taxpayer.  It has been suggested that employers and individuals could be taxed between 4-16%.  The LAO estimated the following new taxes to generate about $113 billion to finance the system:

•    Employers – 8%
•    Employees – 4%
•    Self Employed income – 11.5%
•    Non-wage income-11.5%