The Retiree Drug Subsidy, Still A Form Of Corporate Welfare

Over at the National Review, Stephen Spruiell takes issue with my claim that providing employers with a subsidy for offering prescription drug benefits to their retirees and allowing them to deduct the credit, amounts to one of the more egregious examples of corporate welfare. He rightly points to this study from the Employee Benefit Research Institute, which finds that “it is cheaper for the government to subsidize a private plan than to pay for a retiree’s prescription drugs through Medicare Part D — even with the tax deduction factored in”:

At least some corporations are now likely to drop their retiree drug benefits and dump their retirees into the public system. So, when someone such as Igor Volsky asks why fiscal conservatives are not outraged by this bit of corporate welfare, the simplest answer is that this bit of corporate welfare actually saves taxpayers’ money.

If you click on that report you’ll see that EBRI does find that “for each retiree who loses drug coverage through an employer and gains it through Medicare Part D, the additional cost to the government would amount to $544.” But the report does not argue that eliminating the deductibility will force employers to drop their coverage.

Remember, the health care law only prohibits employers from deducting the subsidy; they’ll still receive the 28% credit. Companies will be encouraged to continue their prescription drug coverage but they won’t be able to profit from it. And despite all the dramatic pronouncements, it’s unlikely that eliminating the deductibility alone would push employers to dump their retirees into Medicare Part D in significant numbers.

In fact, I suspect that since the Congressional Budget Office scored this as a savings, their models suggest that the subsidy will provide enough incentive for businesses to retain their retiree coverage. Government will be able to avoid the financial burden of covering more seniors in Medicare Part D without allowing businesses to deduct taxpayer dollars.