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Cato Daily Dispatch for January 30, 2006

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A Healthcare Ownership Society
Enron Trial Set to Begin Today
Oil Company's Profits for 2005 Revealed

A Healthcare Ownership Society

"President Bush's expected call for expansion of health savings accounts [HSAs] in Tuesday's State of the Union address will likely stoke the debate over the accounts," according to USA Today. "The accounts are seen by proponents as part of a larger effort to create an 'ownership society' in which financial responsibility for retirement and health care costs shifts more to individuals and away from government and employers."

In "A Blueprint for Health-Care Freedom," Michael Cannon, Cato's director of health policy studies, gives his health policy wish list for the president's State of the Union speech: "Federal tax laws encourage workers to surrender control over their health care to their employer. Among other things, that means that most people lose their health insurance when they leave a job. HSAs give some of that control back to workers. Workers and their employer make tax-free contributions into an HSA, which covers out-of-pocket medical expenses. But workers are required to purchase catastrophic coverage, with deductibles in the neighborhood of $1,000 to $5,000. For many, that makes HSAs downright unappealing.

"The president should propose using HSAs to give workers control over all their health-care dollars. First, nearly all workers and employers should be allowed to deposit the entire amount they are now spending on health benefits into a 'large HSA.' Then, workers should be allowed (but not required) to use their HSA funds to purchase a health plan of their choosing, from their employer or any other source. Large HSAs would allow a worker to purchase the coverage she wants rather than what politicians or employers think she should have and that stays with her when she leaves her job. Large HSAs would also increase competition among insurers, and make health care more affordable for workers who cannot obtain coverage, either because they are too sick or too poor."

Enron Trial Set to Begin Today

"The outcome of the criminal trial of former Enron Corp. executives Kenneth L. Lay and Jeffrey K. Skilling, which opens today, will write the coda to four years of battle over whether government can effectively police corporate wrongdoing," reports The Washington Post. "When the go-go energy trading firm collapsed amid secret deals that enriched insiders and hid its precarious financings from the public, it exposed lies large and small in the financial reports of dozens of America's largest corporations."

In the Cato Policy Analysis "Accounting at Energy Firms after Enron: Is the 'Cure' Worse Than the 'Disease'?," Richard Bassett and Mark Storrie argue that although some observers think a lack of government regulation of financial markets led to the collapse of Enron, the rules-based system that guides U.S. generally accepted accounting principles (GAAP), actually facilitated the company's failure. The rules-based system that guides GAAP "has conditioned people to look, not at whether the information presented to the market is a true and fair characterization of the condition of a company, but at whether it complied with the rules," say Bassett and Storrie. Compliance with the rules, important as it is, cannot and does not guarantee by itself bona fide economic results.

Cato's chairman, William Niskanen, edited the book After Enron: Lessons for Public Policy, which addresses the major policy lessons affecting the corporate sector. After Enron focuses primarily on the government policies that contributed to these conditions, the reasons why their weak financial conditions were not revealed and rectified earlier, and the major private and public policy changes that would reduce the frequency and magnitude of future corporate failures.

Oil Company's Profits for 2005 Revealed

"Exxon Mobil Corp. posted record profits for any U.S. company on Monday -- $10.71 billion for the fourth quarter and $36.13 billion for the year -- as the world's biggest publicly traded oil company benefited from high oil and gas prices and demand for refined products," The Atlanta Journal-Constitution reports. "Exxon's profit for the year was also the largest annual reported net income in U.S. history, according to Howard Silverblatt, a stock market analyst for Standard & Poor's. He said the previous high was Exxon's $25.3 billion profit in 2004."

In the Policy Analysis "Economic Amnesia: The Case against Oil Price Controls and Windfall Profit Taxes," Cato senior fellows Jerry Taylor and Peter Van Doren argue that any government intervention in gasoline prices would likely create fuel shortages and reduce investment in new gas supplies. The authors claim that prices are established by the interplay of supply and demand and that competition ensures consumers face the lowest possible prices. Today's relatively high prices will do more to encourage conservation and new supply than any combination of federal policies.

According to Taylor and Van Doren, "no evidence exists of collusion or price fixing among investor-owned oil companies or gasoline retailers in domestic markets," and they provide evidence showing that "the oil and gas sector has been less profitable than the rest of the U.S. economy over the past 33 years." "Oil company profits have increased over the past two years but are still not particularly impressive," the two add.

Greg Garner, editor, ggarner@cato.org