When regulation plays the telephone game
Regulation is nuanced, and applying new regulation can be spectacularly messy. Information gets twisted and is transformed as it makes its way across different communication channels and through different outlets. This means that misconceptions of how a regulation operates and how it affects real people and businesses can run rampant. Remember Obamacare’s Death Panels?
Misinformation spreads like a virus. Business owners and regulators alike routinely negotiate with several layers of local and federal bureaucracy, adding to the confusion. The media covering complex topics like regulations can contain half-truths and incomplete pictures distributed by political campaigns and outside interest groups to push forward a particular point of view. Even those who come up with the regulation don’t always completely understand the ultimate impact of the changes they have made.
President Obama, for example, both before and after the Affordable Care Act was signed into law, would often tout some variation of: “If you like your doctor/insurance plan/health plan, you can keep it.” Politifact gave this statement a “pants on firerating (meaning, it is simply not true). Instead, the new law and subsequent regulations can create situations where insurance companies end existing plans and relationships with doctors in order to comply with the new rules and regulations. According to Politifact:
“Under the new law, policies must cover a comprehensive set of benefits, including emergency care, maternity care, mental health or prescription drugs. If they don’t, they can be “grandfathered” in, but only if the plans have not been changed at all.
“To be grandfathered, the plans must have operated continuously since before the law’s enactment in 2010 and have made no significant changes. This means the insurer can keep the insurance plan essentially as is, without having to implement many (though not all) of the new law’s requirements.
“But the regulations defining what constitutes a significant change are tight — and if it’s breached, the plan is on the road to oblivion.”
All of these incomplete truths add up, leading to both federal government employees and middle market business executives scratching their heads when it comes to fully understanding the ins and outs of various regulations.
According to research from CIT and The Washington Post, data suggests that the levels of familiarity — for both federal government employees and middle market business influencers — of government regulation are weaker than one would assume.
For example, when it comes to the Affordable Care Act, only 17 percent of federal government employees reported being very familiar with the regulation’s impact on business. Conversely, 32 percent of midmarket business influentials said they were very familiar with the regulation. When it comes to financial regulation (think: Dodd-Frank Act), 18 percent of federal employees were very familiar with the regulations; compared with 30 percent of the middle market respondents who said they were very familiar.
David Stallings, a senior economist in the Department of Agriculture said, “Improving clarity and simplifying procedures would be enormously helpful” to government.
Complex regulations can have a mixed impact on businesses, and the immediate costs and hardships imposed by new regulations can often have an outsized impact compared to the longer term benefits that might be realized. Regulations can also have a mixed impact by increasing costs for many sectors while showing a distinct benefit for others, increasing the potential confusion about the real impact of the regulations.
“The ACA, while imposing substantial burdens on us with regard to our own employees, has on the other hand increased demand for our services in the healthcare vertical,” said Matt, an executive at a call center that provides outsourced in-bound/out-bound support, sales and collections solutions to companies in a wide variety of industries, who asked that his last name not be used.
An employee that works in a federal health department remarked that even back in 2010 “vast changes due to legislation, along with new leadership arriving at the same time, were pretty disruptive, but aren’t really the status quo.”
Regulations take time to get used to and once the change and uncertainty of the regulatory process is over and companies better understand these shifts, institutions can be become reticent to transition again after they have invested time and capital in complying with a new regulatory regime.
“During the recession, business was unpredictable,” said Matt, the call center executive. Don’t change it now, he urged. “Things are getting sorted out.”
As noted above, complex regulations have complex outcomes. But this complexity needs to be taken into consideration when they are being written. Often, they’re not.
At the recent annual conference of the securities industry, former New York City Mayor Michael Bloomberg discussed the impact of poorly written and confusing rules that banks and other businesses have to comply with.
Bloomberg believes that when the government drafts regulations, there should be more input from the industry that is about to be regulated because they know more about the real impact of the regulations. According to BuzzFeed, Bloomberg said that the Dodd-Frank Act and the ACA should have been, “created by the people who really understand how the world works, how financial services work and went to Congress and maybe you tweak it a little bit and you get it through.”
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