Commentary

Making a Killing in Annapolis

By Thomas A. Firey and David E. Harrington
This article appeared in the Baltimore Sun, February 1, 2006.
Funeral services are expensive, as any Marylander who has laid a loved one to rest can affirm. The average funeral cost in the Old Line State was $5,682 in 2002, the last year for which federal data are available.

Funerals are expensive in other states as well, but Maryland’s costs are much higher than they need to be. A recent Washington Post exposé revealed that a World War II-era state law that supposedly was enacted to protect consumers from fly-by-night morticians is now being used by existing funeral homes to block legitimate competitors from opening shop.

The law is just one of several state regulations that morticians are using to gouge consumers. By comparing Maryland funeral costs to similar costs in states without such anti-competition laws, we calculate that Marylanders pay some $784 more per death on funeral expenses.

Funeral directors couldn’t engineer this protection by themselves; they’ve had help from state lawmakers who have prevented attempts to reform the funeral laws. Few Marylanders are aware that one of Annapolis’s more generous political benefactors is the Maryland State Funeral Directors Association. The State Board of Elections campaign finance database reveals that the association’s political action committee and individual funeral homes have doled out nearly $246,000 in political contributions since 2000.

With all those dollars flowing from the funeral industry to state politicians, Marylanders should wonder what the money is buying.

People usually think that businesses dislike regulation. But businesses often find it profitable to have regulations crafted to impede would-be competitors. This allows politically well-connected businesses to charge higher prices and manipulate consumers’ choices. These shenanigans are known as rent-seeking.

Rent-seeking is a problem in many states’ funeral services industries, but they’ve become even more galling in recent years because they’re offsetting a number of innovations that should be lowering funeral costs. The advent of direct-to-consumer sales of caskets and other funeral goods threatens to cut out the mortician middle-men who sell those goods at a big markup. Independent funeral homes are also being threatened by chains that use centralized embalming and better labor management techniques to lower overhead costs. Perhaps most threatening of all is the increasing popularity of cremation.

Funeral home directors and owners have fought these innovations in many states through rent-seeking. Working with their politician friends, they have defended and strengthened anti-competitive funeral regulations aimed at stemming the tide of Internet casket sales, the expansion of funeral home chains and the popularity of cremations. One of their recent “successes” has been to convince several states to mandate that crematoriums employ licensed embalmers, even though crematoriums don’t need embalmers.

Consumer groups have fought these laws in several states, scoring a few victories via the courts. But Maryland’s funeral laws will be harder to reform because they are especially obstructive and are protected by powerful lawmakers. The Post article gave much of the credit for killing Maryland reforms to East Baltimore Delegate Hattie Harrison, dubbing her the “guardian angel” of the funeral industry.

It shouldn’t be surprising that Maryland’s funeral laws seem impossible to reform; Annapolis is probably the richest rent-seeking playground of any of the state capitals. From alcohol sales to gasoline sales, from health care workers to hospitals, Maryland regulations are filled with anti-competition provisions that hurt consumers and enrich politically favored businesses.

But maybe, in the 2006 session, adverse publicity over Maryland’s funeral laws will bring about some change. Maybe Del. Harrison and her allies will lose enough of their political grip to allow pro-consumer reform to occur. And maybe, just maybe, Marylanders enduring the grief of losing a loved one will no longer suffer the additional insult of an over-inflated funeral bill.

Thomas Firey is senior fellow for the Maryland Public Policy Institute and managing editor of Regulation magazine. David Harrington is the Himmelright associate professor of economics at Kenyon College and an expert on the funeral services market.