OBAMACARE will cost several corporations a ton of money and could force them to drop the prescription drug coverage they've been providing to their retirees, the companies say. AT&T said it is going to take a $1 billion write-down. Caterpillar announced a $100 million hit; John Deere, $150 million.
This made Rep. Henry Waxman (D., Calif.), chairman of the House Energy and Commerce Committee, very angry. He announced plans to hold a hearing April 21 on "claims by Caterpillar, Verizon, and Deere that provisions in the new health-care reform law could adversely affect their … ability to provide health insurance to their employees. These assertions appear to conflict with independent analyses, which show that the new law will expand coverage and bring down costs."
Mr. Waxman should have thought a bit more before he bullied. If he goes through with his witch hunt, it is he who could be embarrassed.
The companies Mr. Waxman is trying to browbeat are complying with the law. They are required to file a form with the U.S. Securities and Exchange Commission whenever they become aware of a "material event or a corporate change" that affects earnings.
What's at issue is the change Obamacare made in the 2003 law that provided a prescription drug benefit in Medicare. That law said employers who provide prescription drug benefits to retirees can receive subsidies covering 28 percent of eligible costs. Companies could deduct the entire amount spent on drug benefits from their taxable income, including the subsidies, which amount to about $665 per retiree.
The subsidies were a win-win for retirees and for the government. The drug benefits provided by most corporations are more generous than those provided by Medicare, but the tax break cost the government just $233 per retiree, much less than the $1,209 it costs Medicare to provide a smaller benefit.
Obamacare removed the tax deductibility of these subsidies. That amounts to a $14 billion hit if all 3,500 companies receiving them continue to offer prescription drug benefits to their retirees despite the change.
But many won't. And that clobbers cost estimates for Obamacare from both ends.
Eliminating the tax deduction for the subsidies would raise an additional $5 billion, the Congressional Budget Office estimated, because CBO assumed all companies would continue to provide the benefit even if they lost the tax deduction. But if many drop it, the additional revenues will be much less. And CBO made no allowance for the additional cost to Medicare if retirees are shifted onto it.
For prescription drug coverage, Obamacare changes what was a win-win into a lose-lose - a fact that will become evident if Mr. Waxman goes through with his hearing.
Jack Kelly is a columnist for The Blade and the Pittsburgh Post-Gazette.
Contact him at: firstname.lastname@example.org