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August 5, 2007

Arthur Foulkes: Average cost of a funeral comes in at $6,500

By Arthur Foulkes

The cost of dying can be steep.

According to recent figures, the average cost of a funeral is about $6,500 – while fancier funerals can cost as much as $20,000.

Some of the costs associated with funerals and funeral services are the result of state laws that were passed under the guise of consumer protection, but, as is often the case, they were truly passed to protect established businesses from competition.

States have wide latitude regulating their funeral and cemetery services, so there is a big difference in laws across the country. While this makes gathering data more difficult, it also allows for comparisons between states with very different levels of regulation.

There isn’t much research into the effects of government regulations on the costs of funeral services, but Kenyon College economists David Harrington has done a lot of important work in this area.

In a paper co-written with economist Kathy Krynski in a 2002 issue of the Journal of Law and Economics, Harrington argued that states with more heavily regulated funeral services create higher costs for consumers to the tune of more than $200 million annually.

And that’s probably a very conservative figure.

Government regulations sold as protecting consumers are often designed by business interests attempting to protect themselves from competition. Economists call this “rent seeking” and it is a common phenomenon in American politics and business.

The funeral industry seems to be no exception.

Rent seeking is wasteful on two counts: First, it diverts private resources toward obtaining government favors and away from satisfying consumer demands. It also results in barriers to competition that make prices artificially high. For both these reasons, rent seeking is terribly wasteful and destructive.

In 1984, the federal government passed a law known commonly as the Funeral Rule. The law, which, among other things, requires funeral homes to provide an itemized price list of services and products, was designed to stop dishonest funeral directors from misleading or taking advantage of vulnerable clients.

But, as Harrington and Krynski found, a “dense patchwork” of state funeral regulations remain in place. These regulations, they found, contribute to higher funeral costs and have made the Funeral Rule less effective at curbing costs and protecting vulnerable consumers than would otherwise be the case.

Costly state regulations of the funeral industry are easy to find.

A state law in Georgia allows only licensed funeral directors to sell coffins. And Indiana is one of just five states where only a licensed funeral director can certify the transportation and disposal of human remains.

Other state funeral regulations mandate such things as lengthy training, schooling and apprenticeships for funeral directors. Other costly regulations require that funeral homes include their own embalming facilities, even though embalming in many cases is unnecessary.

These sorts of regulations generally reduce competition in the funeral services market by making it harder for new competitors, including low-cost competitors, to enter the market. All this serves to make funeral costs higher than they would otherwise be.

Harrington and Krynski argue, for instance, that more heavily regulated states create an environment that gives greater “market power” to existing funeral homes and allows them to more effectively discourage people from choosing cremation as a lower cost alternative to burial. They calculate that this costs consumers an additional $215 million each year.

Harrington, in a more recent article, also found that many state regulations also discourage online casket purchases and other lower cost funeral options that would save consumers money.

He also found, in an article co-authored with Thomas Firey, that a World War II-era law in Maryland was being used to protect established funeral homes from lower-cost competitors. Harrington and Firey calculate that this law results in funerals in Maryland costing consumers an additional $784 compared with funerals in other states.

Writing recently in Regulation magazine, Harrington concluded that “state funeral regulations are often defended as protecting consumers,” Those favoring regulations argue, for example, that banning online casket sales protects consumers against fraud. They also argue that extensive professional licensing requirements protect consumers against “low quality” funeral services.

Yet, Harrington concludes, “[w]hile it is easy to come up with stories of how state regulations protect consumers, the evidence suggests that funeral regulations primarily benefit the industry.”

The funeral industry is not alone in having a large number of regulations that, while defended as ensuring “consumer protection,” are actually designed to reduce market competition, keep prices high and protect established businesses.

While the Funeral Rule surely helps to protect people at a time when they are most vulnerable, repealing existing anti-competitive state funeral regulations would likely have an even greater effect.



Arthur Foulkes is a Terre Haute native and longtime Terre Haute resident. The Tribune-Star reporter writes a weekly column on business and economics. He can be reached at (812) 231-4232 or arthur.foulkes@tribstar.com.

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