Tuesday, March 30, 2010

Companies push for repeal of health law provision

The American Benefits Council, an association representing 300 large corporations, urged the President and the Congress on Monday to repeal the part of the new health care law which reduces tax deductions for companies that provide prescription coverage for their retirees  From The New York Times:
James A. Klein, the president of the American Benefits Council, called the provision “a serious mistake that is having negative and unintended consequences.”

White House officials defended the provision, saying it was a deliberate effort to eliminate what they said was an unusually generous tax loophole.

They said the overall health care overhaul would save businesses more than $150 billion over the next decade by reducing health care inflation.

“We’re confident that the benefits are going to accrue and strengthen business’s bottom line,” said Linda Douglass, the communications director for the White House Health Reform Office.

When Congress and President George W. Bush enacted a prescription drug plan for seniors in 2003, the legislation encouraged companies to continue providing prescription coverage to retirees, instead of shifting retirees to Medicare Part D, by having the government give those companies large subsidies for each retiree — and also allowing them to deduct those subsidies from their income taxes.

Under the health care overhaul, the federal government will continue providing those subsidies — amounting to 28 percent of a drug plan’s costs — but companies will lose the tax break.

In a telephone news conference on Monday, Mr. Klein cited a study by Towers Watson, a consulting firm, saying the loss of the deduction would cost companies $14 billion in future years.

“Particularly in this economic environment, it makes no sense to impose this type of a hit on companies’ financial statements,” Mr. Klein said. The provision takes effect in 2013, but accounting rules require companies to take immediate charges equal to the current value of any known hit to future profits.

Defending the provision, White House officials said it was rare for companies to obtain a tax-free federal subsidy and be able to deduct it as well.
Ezra Klein at The Washington Post defends the elimination of the corporate tax deduction, and suggests that critics of this provision of ObamaCare are defending corporate welfare, not free markets.  Mr. Klein misses the point entirely.

This monstrous health care bill was sold (not very successfully) to the American people based on financial projections that did not account for market realities.  Whether the Medicare prescription plan and its attendant incentives to corporations was "a bit nuts" at the time is entirely irrelevant.  What is relevant is that when those incentives are reduced, or in the case of the subsidy deductibilty, removed altogether, it alters the financial landscape for corporations providing prescription drug coverage to their retirees.  It may come as a shock to the White House, but the executives of these large companies answer to their boards of directors, that in turn, answer to shareholders.  Shareholders, like it or not, are looking for profits, appreciation of their equity, dividends.  Evil stuff like that.

The inevitable result will be the eventual elimination of these private prescription plans, and the wholesale entry of these people into Medicare D.  While I am quite certain this outcome fits nicely into the left's ultimate vision of single-payer health care, I am equally sure the CBO wasn't permitted to include the costs of this increased Medicare enrollment in its carefully manipulated, fictional  financial projections.

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