Why Aren’t Fiscal Conservatives Outraged By The Wasteful Prescription Drug Subsidy?

The Medicare Part D legislation gives subsidizes of about $1,300 per retiree per year to businesses that provide prescription drugs to their retirees and permits companies to deduct the value of credit. Lawmakers hoped that the policy would prevent employers from ending their retiree drug plans and moving everyone into Medicare.

The new health care law, however, pays for itself by eliminating waste in the system and it closes this particular double dipping provision. Companies would still receive the tax-free subsidy, but they’ll no longer be able to deduct it. And they’re angry. Proving that it is hard to take away what’s already been given, large corporations are mounting a public relations campaign to preserve the deduction. In a series of — what seem like coordinated — press releases, AT&T;, Catepillar and John Deer, among others, have announced that the revision would cost them billions of dollars and an association representing 300 large corporations is is now urging Congress to fix the change:

AT&T; announced last week that it was taking a $1 billion charge because of the provision. Deere & Company announced a $150 million charge, Caterpillar a $100 million charge, and 3M a $90 million charge.

Many companies said they were taking these charges now, before the current quarter ended, to comply with accounting rules. But some corporate critics asserted that the companies’ rapid response to the health legislation was aimed at pressing the administration to repeal the provision. James A. Klein, the president of the American Benefits Council, called the provision “a serious mistake that is having negative and unintended consequences.”

The charges, however, are “noncash,” meaning companies don’t have to write a check for a billion dollars. As the WSJ explains, “since companies had created an asset based on the expectation they would be getting these deductions over the lives of their current and future retirees, they say they need to take a charge reflecting the fall in the asset’s value.” The money at stake for each company is not all that much in annual terms, and the change doesn’t kick in until 2013.


In more general terms, conservatives who are trying to use this story as a way to drum up opposition to health care reform or suggest that other tax hikes for businesses are just around the corner, should ask themselves if they would be expressing similar outrage if the law prevented welfare recipients from deducting the cost of their checks. It seems to me that this is precisely the kind of wasteful spending that advocates of responsible use of tax dollars should support. But as always, they’re nowhere to be found.