November 23, 2010


 
GOVERNMENT NOW REGULATES INCOME STATEMENTS


 
Issuing new "rules" governing the operations of health insurance companies, the Obama Administration has, by virtue of the health care bill forced upon us, arbitrarily decided that something less than a 20% gross profit is appropriate for the purveyors of health insurance.


Irrespective of the stupidity of such a burden upon free commerce, the actual constraint will be appeased by a simple cooking of the books. A month before the companies' fiscal year's end, there will be a scurrying to pay a few claims that would otherwise be denied, simply to meet the government-prescribed threshold of at least an 80% pay-out of premiums in the form of benefits. The additional benefit to the consumer would be that of a low-stakes lottery.


The insurance companies will probably have to fire a few thousand people to reduce their operating expenses. Those displaced should be applauded for their patriotism in "taking one for the team.  "


Now that we know that less than 20% is appropriate for insurers, what will that number be for auto dealers, coffee shops, dress shops, and plumbers. No matter what unique expenses rightly apply to the various enterprises, we must look to Washington for proper guidance on how to run our businesses in such a fashion that we don't make too much money. Expect a table of gross profit values for various business classes, sub-classes, and descriptions that will resemble a New York phone book, thus bloating the already incomprehensible Internal Revenue Code.


With a physical stake in the banking and auto industries, regulation such as prescribed for the health insurance industry is tantamount to a takeover. Where managers and owners once worked skillfully to increase their gross margins ,soon this number will be fixed by regulation. Once that happens, these overpaid executives can be replaced by accounting clerks and computer algorithms, thus increasing the gross margin of the business, triggering price cuts to bring the numbers back into proper register. This regulation great for the consumer, as it reduces prices, combats inflation, and rightly prevents the wretchedness of excessive earning.


Now comes the question:  If businesses are held to minimal profits, should Uncle Sam not protect them commensurately from loss?


Is my appraisal jaded, or has the wisdom of this hyper-regulation simply not been explained clearly enough by the administration?