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Tracking the true cost of the health-care legislation

This is a story I waded into last week and am going to continue to follow because it's really important: How much will the just-signed health-care legislation end up costing corporations? Which is another way of asking: How much is it going to end up costing you, as corporations pass on their costs to consumers and weigh cutting benefits to employees to offset the new government requirements?

Last Friday, I reported that telecom giant AT&T said it is taking a $1 billion non-cash charge against its first-quarter earnings because the new health-care legislation removes the tax deduction on Medicare D subsidies that find their way to AT&T retirees. AT&T joins other big companies -- Valero, 3M, John Deere and so forth -- in reporting big charges.

Here's a no-bull fact you must know: Publicly held corporations are required by SEC regulations to report such good-faith estimates of anticipated charges that could affect stock price. So that's what these companies are doing. They're looking at the new law and doing the math. The new health-care law doesn't take effect until 2013, but the companies are planning ahead.

Of course, there are those who believe the corporations are simply playing politics and not acting in good faith with their shareholders and the government.

Rep. Henry Waxman (D-Calif.) and Rep. Bark Stupak (D-Mich.), for instance.

My former colleague Elizabeth Williamson, now at the Wall Street Journal, blogged this item on Friday, reporting that Waxman and Stupak plan to hold an April 21 hearing to probe "claims by Caterpillar, Verizon, and Deere that provisions in the new health care reform law could adversely affect their company’s 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.”

The "independent analyses" they may be referring to are the CBO estimates, but, as former CBO director Douglas Holtz-Eakin wrote in the New York Times last week, the CBO crunches the numbers it gets. It does not vouch for their plausibility:

"The answer, unfortunately, is that the budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So fantasy in, fantasy out."

So this is going to continue to play out. Maybe the smartest thing ever said to me on the cost of health-care reform was told to me by Dave Walker, former U.S. comptroller and deficit hawk, in an interview I did with him in August 2009. Walker said:

"By definition, expanding coverage will increase health-care costs, not decrease health-care costs."

And he probably wasn't even talking about the private-sector costs that we're now beginning to see.

Follow me on Twitter at @theticker

By Frank Ahrens  |  March 29, 2010; 11:42 AM ET
Categories:  Congress , Corporations , Deficit/debt , The Ticker  | Tags: 3M, AT&T, Bart Stupak, David Walker, Henry Waxman, John Deere, Obama, Verizon, cost of healthcare reform, debt, deficit  
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The Medicare tax changes will probably end up costing me something. But it is not reasonable to count them as a cost of the bill. The reality is that the way the tax code works is highly unfair. Those who get their benefits from an employer get them before taxes. Those who have to pay out of their own pockets have to pay the taxes first. Not only are they not getting the benefits. But they have to pay taxes on all of the money they spend on health care and without the reform they had to use a very expensive and ineffective approach to health insurance based on individual risk. The health care reform did leave much of the tax inequity in place and did largely give up on the attempts to require tax payments on the cadillac health care plans. But it does seem to have done some shifting of benefits from Medicare to supporting younger people with too little income to pay for health care. So those like me who get a Medicare Advantage plan with prescription drug insurance for no extra cost beyond basic Medicare B because our employer is still paying some health benefits and because the Government is subsidizing Medicare Advantage are probably going to have to pay a little more or give up some coverage. Of course, there is some cost to me if my employer has to pay taxes on the money that they are willing to use to subsidize my prescription drug coverge. But, in reality, it just means that I am being treated like all the other people on Medicare who have to pay for their Medicare D out of their after tax dollars.

Posted by: dnjake | March 29, 2010 6:27 PM | Report abuse

With the passage of this bill. It appears from and analysis that employers nationwide will be assessed a $2,000 penalty for every employee not offered group health insurance or commonly referred to employer sponsored health insurance. Does this include part time employees that traditionally didn’t qualify or buy health insurance in the first place because of the cost vrs. Hours worked? How in the world is an employer going to absorb this cost? So if an employee doesn’t want to participate in paying their share, the employer is penalized $2,000?

Posted by: mikeoliphant | March 30, 2010 1:16 PM | Report abuse

Mr Ahrens - What you left out of your commentary is any consideration of what these companies' responsibility should be to honor the promises they made to their employees. That promise was to pay employees’ health care costs through retirement in exchange for their many years of loyal service. In 2003, when the drug bill was passed, these companies saw an opportunity to shift their obligations to the government; i.e., the taxpayer. A (Republican) Congress said please don’t, we’ll subsidize your liability with a 28% tax break. In other words, the companies were essentially bribed to not dump their obligations on the public. They ended up with a net reduction in their costs, which I very much doubt was passed on to the employees. It likely ended up in the shareholders' pockets. Now that the deduction for this 28% (taxpayer) contribution has been eliminated (not the 28% subsidy itself), they're claiming they'll have to cut benefits or lay employees off. The shareholders of these profitable companies reap the benefits of the subsidy and the employees bear the cost of eliminating a nonsensical deduction. These companies then claim that this healthcare legislation made them do it. This is fundamentally dishonest.
Incidentally, there is no increase in total healthcare costs; there’s just an appropriate shift of this liability to the responsible parties.

Posted by: KingMax | March 30, 2010 6:35 PM | Report abuse

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