After President Obama signed the new health care bill into law, large corporations like AT&T, Catepillar and John Deer announced that a provision in the law that preserves the subsidy employers receive for providing retirees with prescription drug coverage, but prevents companies from deducting it from their taxes, would lead to billions in losses. Energy and Commerce Chairman Henry Waxman (D-CA) called a hearing to investigate the claims and Republicans immediately seized on business’ opposition to the provision to argue that the new law would severely disadvantage employers and hurt the economy. Conservatives even portrayed Waxman’s hearings as a “witch hunt” against “companies who dare speak out about the costs and consequences of Obamacare.”
Well yesterday, Waxman unexpectedly canceled the April 21st hearing, but not before releasing the results of the committee’s investigation into the corporation’s claims. Committee staff “reviewed records produced by each company,” met or spoken with representatives of the companies, as well as with a number of industry trade associations” and concluded that while the companies “acted properly and in accordance with accounting standards” in projecting losses from the bill, “the actual impact on annual company cash flows will be only a fraction of the amount of the noncash charges reported to the SEC”:
Although the reported noncash charges are quite large, the impact is spread over a long period of time. The tax change also does not take effect until 2013. The actual impact on the companies’ annual cash flows will be much smaller than the amount reported in the filings. Companies that made the filings calculated the present day value of taxes that will be paid over 30 or more years. In fact, AT&T told the Committee staff that its figure was calculated to “infinity.” [...]
The result is that the annualized impact on each company will be less than the amount charged against earnings. AT&T reported a one-time charge of $1 billion to the SEC, but documents provided to the Committee estimate that the tax change will reduce the value of the subsidy by just $44 million annually. Caterpillar reported a one-time charge of $100 million, but the documents it provided to the Committee estimate that the annual cost will be just $8 to $10 million. While Verizon reported a one-time charge of $970 million, it predicted an annual decrease in net income of $100 million, less than 1% of the $10.4 billion in net income the company reported for 2009.
In fact, when staff spoke to these companies, they acknowledged that reform could help reduce their health care spending. John Castellani, the President of the Business Roundtable, said, “If implemented right, the law has the potential to make employers and employees better off because it could bend the cost curve.” “Should the structural reforms intended to reduce the costs of delivering healthcare under the PPACA ultimately prove successful over time, self-insured companies like AT&T would likely benefit from such reduced costs,” an AT&T representative added.
None of this is very surprising, however, because closing the double dipping provision for retiree benefits does not result in a loss of real wealth. For the last seven years taxpayers have been bribing these companies to continue providing prescription drug coverage to their retirees by paying for 28% of their expenses. AT&T and Boeing cashed the checks and deducted the value of the credit from their taxes. Under the new health reform law, companies are still being bribed, but they’re no longer able to deduct that money from their taxes and so they must revise their future earning projections. They’re revising how much they think they will receive in subsidies in the future.