December 08, 2010
Roadmap for Growth - Government Regulation: Financial and Health Care
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Regulating the Right Way
December 8, 2010
Business Roundtable has always supported sound regulations that protect our workforce, our economy and our environment. When regulations are developed and implemented the right way, they can empower employees, facilitate growth and improve the quality of our health, air, water and land. Effective regulations can also ensure U.S. industry remains innovative and competitive in the global market, ultimately bolstering and growing our economy at home.
But when regulations fail to achieve these results—when the public is no better off, the environment no cleaner, the economy no sounder and American businesses no stronger or more competitive—those regulations must be reevaluated.
Specifically, the success and profitability of U.S. companies—and their subsequent ability to invest in new jobs and new solutions—has been threatened by inflexible and cumbersome regulations in the financial services, environmental and health care sectors.
Business Roundtable believes that we can strike a balance between regulation and economic development. This balance can—and must—be achieved to ensure continued economic growth and recovery.
Business Roundtable has identified the following areas where regulatory improvements and reform must be made to protect and strengthen American workers, U.S. companies and our economy as a whole.
- Imposing a 3% margin requirement on over-the-counter (OTC) derivatives would cause the S&P 500 companies alone to reduce capital spending by $5–$6 billion per year; this would lead to a loss of 100,000–120,000 American jobs
- 72% of Business Roundtable CEOs say that the new derivatives provisions would have a significant impact on their business
Business Roundtable supports strong, targeted reforms for our financial system, championing measures that will encourage American investment, innovation, job creation, confidence and stability in the economy.
The Restoring American Financial Stability Act (“Dodd-Frank”) enforces a “one-size-fits-all” approach that fails to account for the diversity of U.S. businesses and interferes with their ability to innovate and create jobs. The scope of the legislation goes beyond the causes of the financial crisis. Indeed, the bill as passed, is broad-stroke legislation that will have many unintended consequences for the more than 12,000 non-financial publicly-traded companies and the U.S. economy overall. For example, new cumbersome regulations and provisions dealing with corporate governance and derivatives will increase volatility, risk and uncertainty in the market, which will impact the ability of companies to invest in new jobs and new solutions.
Because of the historical regulatory approach, which relied primarily on the actions of individual states, corporations have been able to implement governance best practices and flexibly respond to shareholder concerns. Recent examples include shareholderinitiated reforms such as majority voting, elimination of classified boards and transparency of political contributions.
Recent SEC rules on proxy access, however, would impose a “one-size-fits-all” mandate and exacerbate focus on the short-term rather than long-term value creation.
Derivatives provisions in the recently passed financial regulatory reform bill could place an extraordinary burden on end-users in every sector of the economy, including manufacturers; energy companies; utilities; health care providers; insurance companies and other financial end-users; and commercial real estate owners and developers.
Many of these businesses rely on OTC derivatives to manage such risks as fluctuating currency exchange rates, interest rates and commodity prices.
A Business Roundtable study found that imposing a three percent margin requirement on OTC derivatives could cause the S&P 500 companies alone to reduce capital spending by $5-6 billion per year, leading to a loss of 100,000-120,000 American jobs.
The rationale for regulating derivatives is to lower systemic risk, yet the regulation prescribed by Dodd-Frank will increase the costs of managing risk and will cause volatility to be distributed less efficiently throughout the economy. Simply put, end-users should not be subjected to bank-like regulation that will harm, not promote, economic recovery.
To ensure that the recently passed financial reform bill helps achieve strong economic recovery, growth and market confidence, Business Roundtable recommends the following actions:
- Proxy voting. Congress should rescind the authority it gave the SEC on proxy access. This responsibility should remain in the purview of states and individual companies and their shareholders. The SEC’s final rule on proxy access was an unfortunate first step in implementing the hundreds of regulations emanating from the legislation and it should be overturned in the pending court challenge. In any event, it is critical that the SEC update its rules to promote greater efficiency and transparency in the proxy voting system and enhance the accuracy and integrity of the shareholder vote, including regulation of proxy advisory firms.
- SEC rulemakings. As the SEC and other regulators consider other rulemakings, it is important to make certain that the final rules add value, enhance confidence in the economy and foster companies’ ability to grow and create jobs. Specifically, as the SEC embarks on disclosure rulemakings, it must take care to focus on usable and actionable information.
- Avoid over-regulation of derivatives. Roughly 72 percent of U.S. CEOs say that the new derivatives provisions could have a significant impact on their businesses. Implementation of the derivatives provisions in the financial regulatory reform should not jeopardize practical risk-management tools. Policymakers must avoid imposing costs on the end-users of legitimate derivatives.
Health Care Regulation
- Our employer-based health care system insures 177 million Americans
- The G5 countries (Canada, Japan, Germany, the United Kingdom and France) spend just 63 cents for every dollar we spend on health care, and yet we achieve no better outcomes
Business Roundtable has always been a strong advocate for health care reform, recognizing the need to slow rising costs, improve efficiency and ensure continued quality to relieve the financial burdens on American families, increase workers’ mobility, spur job creation and strengthen American competitiveness in the global market.
The health care reform law was a step forward in reforming our nation’s health care system to improve the quality of care while expanding access for all Americans, but it is far from perfect. Specifically, the law does not adequately address certain opportunities for meaningful cost containment, most notably medical liability reform. It also includes taxes and fees that will be passed on to purchasers. As the law is implemented, regulators will need to work collaboratively with the private sector to limit disruption and continue focusing on reducing the rising costs of care.
According to Business Roundtable’s Health Care Value Comparability Study™, a widely respected measure of the cost and performance of the U.S. health care system relative to our global competitors, the United States spends more than our competitors to achieve an overall level of health and quality of care that is no better. For every dollar we spend in the United States on health care, our top competitors (Canada, Japan, Germany, the United Kingdom and France) spend just 63 cents.
Fortunately, in recent years, we have made progress as a nation in improving health system quality. In particular, a series of hospital safety initiatives led by large U.S. employers, government and health industry organizations, has reduced hospital errors. These efforts demonstrate the potential impact of focused, coordinated efforts.
There remain many challenges ahead as we work to create greater efficiencies and capture savings. The success of this reform will be based on allowing private market innovation and creating non-excessive, smart regulation.
- Preserve the Employee Retirement Income Security Act (ERISA). ERISA is the foundation for our employer-based health care system that insures 177 million Americans; safeguarding ERISA means protecting the majority of Americans and their families.
- Enact medical liability reform. The medical liability laws need to be changed to ensure that patients do not lose access to physicians and a full range of health care services.
- Promote competition in the marketplace. The marketplace needs to be expanded and private plans should be allowed to compete without undue regulation under the new insurance market rules.
- Reduce costs. Several cost-cutting strategies should be implemented, including but not limited to: delivery system reforms under Medicare; wellness and prevention programs; comparative effectiveness research; and expanded use of health information technology to save costs and reduce duplication of services.
- Leverage innovation and technology to improve health outcomes. The power of innovation must be brought to bear on our health care system through the private marketplace. Technology and innovation are two of the most effective tools we have in the fight to provide every American with affordable health care services and positive health outcomes.