Hartford Business Journal

January 14, 2019

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20 Hartford Business Journal • January 14, 2019 • www.HartfordBusiness.com Opinion & Commentary EDITOR'S TAKE Will legalizing vices help or hurt CT long term? I t seems inevitable that Connecticut will rely more on sin taxes by the end of this year, which should help bring in more revenue to a state that's been mired in a fiscal crisis for more than a decade. But what are the long-term consequences — social and otherwise — of legal- izing recreational marijuana use or sports betting? I don't know the answer to that — most likely no one does at this point — but it's a key question state lawmakers and Gov. Ned Lamont, who has said he sup- ports greenlighting both vices, must weigh in the weeks and months ahead. Another hot-burner issue is adding a third casino in East Windsor, which lawmakers previously approved but have run into federal roadblocks they may try to overcome. Connecticut isn't breaking ground in any of these areas. Ten or so states and the District of Columbia have already legalized recreational pot use, includ- ing Massachusetts, which has put pressure on our state to respond in order to capture some of the economic benefits. At stake is potentially $180 million in annual tax revenue, according to one estimate, which is a big number for a state facing a $3 billion-plus deficit over the next two fiscal years. Some states have also legalized sports betting in the wake of the Supreme Court's 2018 decision to allow it, including nearby Rhode Island and New Jersey. A bipartisan group of southeastern Connecticut lawmak- ers has already submitted a bill that would establish sports betting at the state's two casinos and online. It's unclear how much tax revenue that proposal would raise for the state. As of November, New Jersey, whose population is more than twice the size of ours, booked about $8 million in revenue from online and brick-and-mortar sports betting, which it launched last summer. The concern, in my mind, about expanding our reliance on sin taxes is the long-term social and cultural conse- quences it will have on the state. Frankly, we don't really know what they'll be. Do I think it will lead to the social disintegration of Connecticut's communities? No, and this is no time for hyperbole — we need a fact-based conversation on the true impacts of legalizing behavior we long thought should be against the law. Luckily, some early evidence exists from other states. Colorado was at the vanguard of recreational pot legalization. It was the first state to do so in 2012. In October, the Centennial State released a five-year impact study that concluded young people aren't smoking more than they used to, but organized crime was on the rise. The report also said it was unclear whether legal weed has led to more impaired drivers, according to The Denver Post. Lamont, in his support for legalization, has said he doesn't want the black market running the weed trade in Connecticut, which is a fair point. But the main argument pot proponents are using is an economic one. And if you dangle a pot of gold in front of state lawmakers these days they'll do just about anything to get their hands on it. However, I've always believed pushing legalization of an illegal drug simply because it will help the state raise new revenues is not sound economic, social or public-health policy. Legalizing weed as a way to reform the criminal justice system, for example, is a better argument worth having, but even that notion is flawed. Gov. Dannel P. Malloy, for example, at one point said he opposed legalizing recreational pot even though he made significant strides to decriminalize small amounts of the drug's use. I agree that marijuana use shouldn't stain an individual's criminal record — damaging the employability of low-level offenders, particularly minorities — but sanctioning the drug's use, which legalization would do, is a road I'd prefer not to travel down. At the same time I understand public opinion is rapidly changing on this topic and legalization appears inevitable. I just hope lawmakers take their time to truly understand the long-term consequences. ECONOMIST'S PERSPECTIVE Economic insights into the CVS-Aetna deal By Fred McKinney T here are two significant forces driving unprecedented changes in the market for health insurance, and the market for other consumer health products and services: technology and the prospect of single-payer health insurance. These forces pose the largest chal- lenges for health insurers. In 2017, the Department of Justice prohibited the mergers of Aetna with Humana and Anthem with Cigna because it determined these deals would result in a significant reduc- tion in competition. This decision signaled that in- creased concentration could not be used to solve the insurance indus- try's long-term profitability dilemma. Largely in reaction to this roadblock, insurance companies began looking at ways to solidify vertical relationships with their customers and suppli- ers. Two of the insurance industry's biggest suppliers are pharmaceutical benefits man- agement (PBM) companies and the retail pharmaceutical industry, which, ironically, is more concen- trated than the national insur- ance market. We're seeing a game of musical chairs as health insurance companies vie for partnerships with giant retail- ers and PBM companies. Here's how the lineups look right now: CVS and Aetna; Cigna and Express Scripts; and Walgreens and Humana. Unlike the horizontal merger attempts — Aetna with Hu- mana and Anthem with Cigna — the Department of Justice has approved these vertical combinations. For now, there are several unan- swered questions in regard to the recent deals: • What will happen to health insur- ance and pharmaceutical prices? • Will there be any impact on other healthcare prices, such as physi- cian or hospital services? • How will these changes affect relationships between the com- bined companies and their large employer customers? • What will be the impact of tech- nology companies like Amazon's entry into both the pharma and insurance business? • What role(s) will these new vertically integrated healthcare companies play when — not if — single payer becomes a reality? • Are there more combinations to come? Specifically, with CVS, Walgreens, Walmart and other retailers opening walk-in, non- emergency clinics, will these mega healthcare organizations start buying up major hospital systems and large physician practices? Economic theory is silent on what happens to consumer prices when vertical mergers occur. The compa- nies in these mergers, CVS and Aetna and Cigna and Express Scripts, argue that greater efficiencies will result in lower cost and potentially consumer savings. Time will tell whether any of these greater efficiencies, lower cost or consumer savings will become reality. In 2003, Congress passed the Medicare Modernization Act, which prohibits the federal government from directly negotiating with pharmaceutical companies to lower prices. Medicare and Medicaid have more than 59 million and 75 million recipients, respectively. The federal government, by abdi- cating its market power to buy effec- tively, has surrendered to big pharma. In a single-payer system, reclaiming this federal buying power would be one of the first things to change. When we look at the CVS-Aetna com- bination, it appears that competition among the major insurance companies may keep prices in check. However, this concentration of vertically integrated healthcare Fortune 100 companies increases the risks that consumers will face higher prices for health insurance, pharmaceuticals, or both. Looking toward the future, we can expect the disruptive force of technology and the impact of single- payer health insurance to transform both health insurance and retail pharma into something that is un- recognizable today. Fred McKinney is the Carlton Highsmith Chair for Innovation and Entrepreneurship and director of the Center for Innovation and Entrepreneurship at the Quinnipiac University School of Business. Greg Bordonaro Editor Fred McKinney

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