Shrinkflation and SB 959

Inflation is hopping as we end 2021. U.S. News reported recently that From Cars to Gasoline, Surging Prices Match a 13-Year High. That story blames some increases upon "tangled global supply lines (that) continue to create havoc." It explains that "the unexpected burst of inflation this year reflects sharply higher prices for food and energy, but also for furniture, cars, televisions, and other largely imported goods." There are those who level criticism at various targets regarding inflation. And, it is not necessarily over or even plateaued. One expert quoted in the article notes "we look for inflation to remain persistently above 3% through mid-2022."

There are those who believe that the inflation is "pandemic-related." Therefore, it is seen by Brookings as "temporary," and it predicts that "the current trend does not forecast the future." But, Brookings notes that "after excluding the typically volatile categories of food and energy prices, (inflation) is running higher than it has been in decades."

It is not a United States phenomenon alone. Pew Research noted recently that "Inflation has risen around the world." It notes that inflation was recently noted in 39 of 46 countries in a study. It is perhaps fair to characterize this as a global issue. However, the impact on the U.S. has been notable, perhaps profound. Pew notes multiple potential causes for this:

"Explanations for the current phenomenon proffered to date include continuing disruptions in global supply chains amid the coronavirus pandemic; turmoil in the labor markets; the fact that today’s prices are being measured against prices during last year’s COVID-19-induced shutdowns; and strong consumer demand after local economies were reopened."

The Visual Capitalist recently reported gasoline is up 50%, natural gas up 28%, used cars up 26%, meat up 15%, furniture up 12%, eggs up 12%, and that there is "no consensus" on where 2022 will lead. It notes that the "inflation rate in the U.S. has seen its fastest annual increase in over 30 years." For most of us, inflation is a serious challenge and there is little chance in the short run that the fruits of our labors (pay, fees, prices) will increase at a similar pace.

Periodically during this pandemic, prices have been less relevant. There was a period there where the supply of toilet paper, Lysol, hand sanitizer, and more were essentially zero. When such products appeared, they were consumed without any consideration of price, and some expressed surprise that manufacturers and retailers did not charge higher prices in light of the supply and demand equations. I had an intriguing conversation with a man in a check-out lane several months ago about his efforts to subvert the store's "two item limit" on bacon. He confided that was his third trip of the day for bacon and toilet paper. I like bacon too, but really?

Notably, however, MSN recently highlighted the related concept of shrinkflation, inflation's less renowned cousin. The retailers and manufacturers are cognizant that consumers have a familiarity with the price point for various products. We are aware that apples sell for $x per pound, or a head of lettuce is $y. They know that we will notice price expansion in those settings. They also know that most products in the store are not sold by the pound or ounce. They are sold by volume, and for years they have warned us that "contents may have settled during transit," to guard against consumer shock at the volume of empty space in the newly opened box.

MSN notes that "inflation is at a 40-year record high," and product costs are rising. It contends that one reaction is "something a bit more sneaky." Rather than raise the price on a box of product, the manufacturer maintains prices and puts less product in that box. One example cited involves a frozen pizza brand that one customer claims "used to feed three of his children in the past was only enough (now) for one child." That seems a bit over-the-top. I never saw a pizza in my life that could feed three children, ok, maybe very small children, but I digress.

Another cited example is some ice cream bars that shrunk from 3.5 ounces to 3 ounces. And, manufacturers strive to put a positive spin on the change "so that we can keep delivering our beloved extra creamy ice cream to our fans without sacrificing any of the quality components that got us here.” But, this merely suggests yet another (third) option out there: maintain price and volume/quantity, but simply skimp on the quality of inputs (raw material) in order to remain viable. Thus, the consumer is left with the challenge of evaluating purchases based on product price, volume, and quality.

There are perhaps valid explanations for "down-sizing." One MSN example from the 1970s was presented by gumballs. Back in the day, every store (it seemed) had a gumball machine or similar vending opportunity geared towards us young folk. There was a slot for a coin, a handle to turn or slide, and the machine would dispense some quantity of gum, candy, or a trinket. We begged (or worse) the adults for a penny and were so excited to get one). MSN explains in that context, that replacement of those machines, geared to some specific coin such as a penny (yes, kids, we used to actually buy something for a penny), would be cost prohibitive. Thus, the options on the table were only to diminish quality or shrink size/volume, as changing the price was not an option.

Similarly, in today's marketplace, there is likely some effort involved in changing the price on a store shelf, in a point of sale computer system, etc. Thus, in an age of shifting quality or volume, the determination of the actual price you pay comes down to you and your consumerism. Is the outcome any different in the world of workers' compensation? As inflation persists in the marketplace, the price of services or products increases. Or, perhaps not.

Inflation is a reality for everyone. The prices of goods and services persistently increase. Some of that is driven by market forces, which can sometimes be more discernable than other times. For example, a single market element such as fuel could impact the prices for obtaining materials, manufacturing, and delivery to market. If there is some disruption in the solitary element of fuel cost, inflation might occur in a variety of outputs/products.

In other instances, government action similarly alters some input price. One easy example is the minimum wage; another is taxes. Thus, through government mandate, some price is set for an production input or tariff on the producer output, and thus pressure on the price. There are many other potentials for government to impact prices of goods and services, through regulation. A 2018 analysis by Investors Business Daily estimated that the "actual cost of regulations to the U.S. economy is . . . roughly $2 trillion a year." That regulatory cost is "greater than the GDP of all but nine countries." Regulation is expensive; American regulation is notably so. Remember Ronald Reagan's "nine most terrifying words?" They were "I'm from the government and I'm here to help." Help raise your prices and stifle your production.

Florida recognized this years ago, in 2010. Section 120.541, Fla. Stat. defines parameters for "adverse impact on economic growth," as being an impact "in excess of $1 million." If a rule (which largely are enacted by the executive branch agencies) is "likely to have an adverse impact on business competitiveness," then the "rule may not take effect until it is ratified by the Legislature." This is a recognition of the potential for regulatory cost impact and a requirement that the elected representatives approve such impacts. This is an accountability law, preventing unelected officials from regulating us into something more than that "$2 trillion a year" estimate noted above.

By this point, you are forgiven if you are muttering under your breath "what does this have to do with workers' compensation?" That is a fair question. In 1978, the Florida Legislature was concerned about medical costs in workers' compensation, and it formed "an advisory committee" on the topic. That soon evolved into the unflatteringly-named "three member panel," charged with annual determination of “maximum reimbursement allowances for” medical treatment and care. Section 440.13(4)(a), Fla. Stat. How, one might ask, does this panel cap reimbursements? The answer is by rules; the reimbursement manuals for medical care are rules. And, those rules are subject to the provisions of section 120.541 discussed above. So, government action, regulation, limits medical reimbursement. Legislative action, statute, limits regulation. And, there is the proverbial rub.

The result is that medical reimbursements have not been determined annually. In 2022, that may change. Senate Bill (SB) 959 has been introduced, and would specifically state that the legislative approval process for rules "does not apply" to the "schedules of maximum reimbursement" in section 440.13. The impacts of inflation upon the provision of medical care in the workers' compensation market could be considered more fluidly and adjusted more easily. The debate regarding that ease of adjustment and the overall intent of section 120.541 will be interesting to watch as this is debated and discussed in 2022.

Without annual alterations to reimbursement, how does a service provider (physician) survive? Perhaps she/he just accepts less profitability and nonetheless perseveres in providing excellent and peerless care in a difficult environment? One might instead posit that such a provider is in the same posture as the pizza and ice cream manufacturers discussed above (though mandated to not raise prices instead of merely being reluctant to do so). The provider could shrink the serving size (shorter time spent with each patient to facilitate more patients and thus maintain income). The provider could employ some substitute inputs (more care with nurses or physicians assistants and less doctor attention). A big difference worth noting is that you (consumer) make the choice in the grocery store, but the patient in workers' compensation generally does not make the choices as to medical providers.

Inflation is insidious, pernicious, and persistent. Us Boomers (keep your insults in check) remember penny gumballs, quarter ice cream cones, and buying a whole dinner at McDonalds for less than a dollar. The world has changed a lot, and it takes a while for each generation to see the impacts and effects. The youth of today may well roll their eyes at my recollections of gumball and burger prices, without realizing that I too rolled my eyes at the recollections of the Silent Generation that preceded me. Remember summer camp? - "Second verse, same as the first. A little bit louder and a little bit worse!" I bet the Silent Generation rolled their eyes at the Greatest Generation, and so on, and so on. 

I recommend some solace in the lyrics of Baz Lurmann from The Sunscreen Song (1999):

"Accept certain inalienable truths: prices will rise, politicians will philander, you too will get old -- and when you do, you'll fantasize that when you were young prices were reasonable."

Inflation is as inevitable as death and taxes folks, and just as welcome. It will fluctuate, and the present is a tough time in this regard. Those whose wages are not increasing exponentially are currently seeing their buying power shrink instead. But, time will bring adjustment. Wages will either rise naturally to meet the effects of the recent overspending and minimum waging, or there will just be more overspending and minimum waging by the government to respond. The cycle is bound to continue, though pace might be argued. We will all adjust in time. 

And, Happy New Year to you too! May it bring:

(1) Less contention about face masks and vaccines. 
(2) Less infection, hospitalization, and death.
(3) Less inflation, shrinkflation, and regulation.
(4) More goodwill by all for all around us.

What is on your list?

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    About The Author

    • Judge David Langham

      David Langham is the Deputy Chief Judge of Compensation Claims for the Florida Office of Judges of Compensation Claims at the Division of Administrative Hearings. He has been involved in workers’ compensation for over 25 years as an attorney, an adjudicator, and administrator. He has delivered hundreds of professional lectures, published numerous articles on workers’ compensation in a variety of publications, and is a frequent blogger on Florida Workers’ Compensation Adjudication. David is a founding director of the National Association of Workers’ Compensation Judiciary and the Professional Mediation Institute, and is involved in the Southern Association of Workers’ Compensation Administrators (SAWCA) and the International Association of Industrial Accident Boards and Commissions (IAIABC). He is a vocal advocate of leveraging technology and modernizing the dispute resolution processes of workers’ compensation.

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