The Associated Press finally got around to reading the health care reform bill and guess what they found:
The health care overhaul will cost U.S. companies billions and make them more likely to drop prescription drug coverage for retirees because of a change in how the government subsidizes those benefits.
In the first two days after the law was signed, three major companies — Deere & Co., Caterpillar Inc. and Valero Energy — said they expect to take a total hit of $265 million to account for smaller tax deductions in the future.
With more than 3,500 companies now getting the tax break as an incentive to keep providing coverage, others are almost certain to announce similar cost increases in the weeks ahead as they sort out the impact of the change.
Figuring out what it will mean for retirees will take longer, but analysts said as many as 2 million could lose the prescription drug coverage provided by their former employers, leaving them to enroll in Medicare’s program.
Which means they become another taxpayer expense on top of everything else that ObamaCare imposes on us.
Amazingly, the Obama Administration doesn’t see this as a problem:
White House spokesman Robert Gibbs defended the tax law change Thursday, saying the original provision allowing companies to deduct the federal subsidies from their taxable income was a “loophole” that will be closed by the health care overhaul.
What Gibbs is either too dishonest to admit, or too blind to see, of course, is the fact that the tax credit was intended to give companies an incentive to continue providing insurance coverage to their retirees, instead of sending those people to the Medicare Part D system and imposing additional costs on the system. Now that the tax credit has been eliminated, it’s not going to be too long before many of these companies look at their books and decide that the extra costs of providing retiree prescription drug coverage is no longer in their interest. At which point, they become out problem.
Not just stupid, but stupid squared.
H/T: Hot Air
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So if I understand the original tax benefit, as worded in the AP article:
If a company extended Rx coverage to a retiree, they got a 28% subsidy….the example in the article was:
if a company spent $100 on benefits, including a $28 government subsidy, it could write off the full $100 on its taxes under the old rules.
So they spent $72 dollars, as it were, and wrote that off as a tax deduction (not tax credit). They also got an extra $28 tax deduction, which the government (tax-payer, of course) paid for. The company didn’t lose that money, didn’t pay it out, never had it in the first place as it were.
So now…well, actually 2011, they only get to write off $72, the amount of money they _actually_ spent.
And the complaint isn’t that this removal of a tax deduction, is “unfair”, but that it provides a strong incentive for the company to not pay for that Rx coverage?
So essentially, the companies will have to pay ~20% tax (the effective corporate tax rate) on the $28 they didn’t spend and still have. Which is ~$5.6 extra in tax they will pay, all other things being equal, which I am not sure it will be. The tax code/law is onerous to read and stay current on and interpret!
Does anyone have the figures on how much it costs them to provide that benefit? And whether this additional $6/$72 will burden them? And how much it will cost the taxpayer?
I don’t have an MBA or accting degree, but surely there is some transparent way of calculating all this, without trusting just the word of a purely profit driven corporation’s word on their costs…
If the companies got a tax credit for providing the coverage, then eliminating the credit won’t impose “additional costs on the system.” The government is paying for it either way, either by (1) reimbursing companies that paid for it, or (2) paying for it directly.
Either way, nothing changes for the taxpayer.
This is how I see the impact of this change on companies who sponsor retiree prescription drug plans. As an employee benefits director of a Fortune 100 Company, it is my observation that many companies will eliminate their retiree prescription drug programs for employees and their spouses who are age 65 and over. In turn, those individuals will have no option but to participate in the Medicare Part D prescription drug program for their primary prescription drug coverage as it is their only alternative if they want to have insurance coverage for drugs. The actuarial cost for this government-sponsored program is approximately $1800 for each covered individual…$3600 for each couple. Thus, the government’s cost will increase $1200 ($1800 less $600) for each covered individual, or $2400 for a couple who are shoved out of their company-sponsored drug plan. In turn, the company that originally sponsored the drug program will save the same amount ($1200 or $2400) each year cash flow wise PLUS, more importantly, eliminate the full future cost liability of providing such a plan from their balance sheet. Roghly, the increase to the US government could be as high as $20 Billion each year. Such a deal, eh? It is evident that the Administration did not thoruoghly think out this issure prior to enactment.
[...] outsourcing of insurance processing jobs to India, that the law includes a tax law change that is likely to significantly increase the costs of the Medicare prescription drug benefit, that it will increase the financial burden on state governments, that the law will not, in fact, [...]