Immediately after the health care bill passed, some major corporations complained that the bill would cost them millions of dollars. AT&T claimed it would suffer a $1 billion loss. A new article in Fortune says these companies are considering dropping their employee benefit health insurance and paying the fine instead. They think it might be cheaper to “pay” than to “play.”
The Fortune writer, Shawn Tully, wrote “The legislation eliminated a company’s right to deduct the federal retiree drug-benefit subsidy from their corporate taxes.” Read that carefully. The corporations were deducting a government subsidy from their corporate taxes as if it were a cost. They’ve lost that “deduction,” which was actually bare-assed corporate welfare.
They’ve been doing this since January 2006, when the Medicare Part D act went into effect. The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) had the government reimbursing employers 28 percent of the cost of retiree drug benefits that met certain requirements. But the same act also allowed employers to deduct 100 percent of the cost of prescription drug benefits, including the 28 percent that was subsidized by taxpayers already.
As Brad DeLong pointed out, this meant that for companies in the 35 percent tax bracket, $63 of every $100 spent on prescription drug benefits was being paid by taxpayers.
The just-passed health care reform bill closed the “double dip” and allows companies to deduct only that part of their prescription drug benefit costs they paid themselves. And now some of these companies are complaining that their business models will just about collapse if they can’t continue to deduct the subsidy, because just deducting the amount they actually spend on drug benefits will break them.
Of course, a gaggle of rightie bloggers jumped on this article as proof that Obamacare will destroy America, screaming about taxes and penalties, when what really happened is a cut in corporate welfare.
Now, it may very well be true that dropping employee health benefits and paying the penalties would be more cost effective for these companies, but it would have been even more cost effective for them to drop employee health benefits before there were any penalties. And they didn’t. And they didn’t because it would be harder for them to hire quality people if they don’t offer benefits. As long as that’s true, they’re going to offer benefits.
The other Big Lie implied in the righties’ screeds is that the health reform law will drive up health care costs more than they would have gone up otherwise. Ain’t so. Last year, the Kaiser Family Foundation estimated that without reform the average cost of an employee benefit family policy could go from $13,375 (the average in 2009) to $30,803 by 2019.