John E. Sununu

If a law doesn’t work, waive it away?

By John E. Sununu
July 25, 2011

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AT ONE point during recent debt negotiations, President Obama laid down a list of “untouchable” budget items. Topping that list was anything having to do with implementing or enforcing the Health Care Reform Act. Ironically, the hard line came only after the Department of Health and Human Services regulators had issued waivers exempting 1,400 companies from the harsh effects of ObamaCare.

Everyone knows that regulators write the rules. But the real power comes with the power to tell states, industries, or, as in this case, individual companies that they don’t have to comply.

At about the same time, HHS began shutting down the waiver program - an action it announced on a Friday afternoon, the customary way to bury bad news in Washington. Companies now face a September deadline to apply for protection. After that, they’re out of luck. According to the administration, without the special treatment, health care premiums for 3 million workers would have gone up by 10 percent or more. A note to social engineers of all parties: If you have to protect 3 million people from a brand-new law, it probably wasn’t very well written in the first place.

That this was an unintended consequence is clear from the fact that the law never contemplated a need for waivers in the first place. In a stroke of bureaucratic magic, HHS simply granted itself the power, and started dispensing the passes. Only when independent groups started pressing for transparency did things begin to shut down.

The broader lesson here is that the constant need for special waivers is symptomatic of poorly written public policy. It’s a signal that the cost of compliance is unreasonably high; the benefits are hard to measure; and either legislators or regulators have failed to do their homework.

The waiver process exposes another deeper danger as well: the arbitrary application of government power. The ability to absolve companies of regulatory obligations creates uncertainty, even fear, in the business community. Companies are left to hope, beg, and plead for special treatment, often because their competitors have already received a free pass. That’s the plight of 150,000 workers whose employers were denied the ObamaCare pass.

Consider the administration’s recent proposal to raise fuel efficiency standards to 56 miles per gallon by 2025. That’s more than twice the current standard - intimidating enough for staggering automakers with no current technology to meet the goal. As a kicker, the Department of Energy will re-evaluate the current fuel economy target in 2020, and either ease the rules or toughen them based on how far the industry has “progressed.” That comes perilously close to a threat.

For the foreseeable future, the automakers, whom taxpayers have already bailed out twice, will tread in fear. Their researchers will present new “green technologies,” their regulatory-compliance teams will curry favor with federal transportation officials, and their executives will look for opportunities to say nice things about the administration. Not because it will improve productivity or produce better cars, but because carmakers fear the wrath of an arbitrary federal hand.

At the EPA, the administrator pushes ahead with revisions to smog regulations even though standards were just toughened three years ago. The threat to tighten the rule by as much as 20 percent has states and cities on edge. Failure to comply with the smog standard triggers expensive steps for mitigation, with the EPA holding the power to issue waivers to those who find their favor.

This unpleasant practice is partly the fault of legislators for giving so much discretionary power to regulators - some appointed, some just career government employees. Sure, it might take more time for Congress to negotiate clear standards and write them into the law, but the end product is likely to be less controversial and more fairly applied.

Politicians also have a love affair with the “small business exemption.” Too much paperwork? Too heavy a burden? Not enough time? Just exempt small businesses from the rule. It sounds so pro-growth. Instead it’s an admission that the costs of a regulation just can’t be justified.

Big firms can bury the cost of compliance deep in their financials; but cost-benefit calculations don’t change when a firm moves from 99 to 100 employees. If it’s a sensible regulation for protecting safety, health, or the environment, then everyone should comply. If not, please go back to the drawing board. Trying to waive away the damage of a bad law is public policy - and politics - at its very worst.

John E. Sununu, a regular Globe contributor, is a former US senator from New Hampshire.