Apr 2, 2010

The Hidden Untapped Source of Revenue in ObamaCare

Right off the bat this week, the news on healthcare reform is that, the major corporations are discovering they will be losing stunning amounts to taxes as a result of Obamacare.

Caterpillar, the first to speak out before the vote, reported it will take a one-time write-down of $100 million in order to account for the elimination of a federal tax refund it has been receiving for providing drug benefits to its retired employees.

In the following days, AT&T, Verizon, 3M, Deer & Co., and AK Steel Holdings announced they would take similar write downs. AT&T's new tax bill will come to over $1 billion. The news is a body blow to major companies hoping to recover profitability and add jobs.

If all this sounds familiar, it should. It is exactly what Republicans predicted would happen if Obamacare became law. If existing employee benefits were taxed or made more expensive, the GOP argued, employers would either have to absorb the loss or start pushing their employees into whatever "government option" became available.

When the Bush Administration adopted Medicare Part D in 2003, companies threatened to do just that, dropping their coverage and letting retirees buy into the federal program. The government offered a tax refund of about $650 per retiree in order to keep Part D costs down. Now the Obama Administration has decided to eliminate the tax refund in order to pay for the larger entitlements in the new bill.

The complaints were too much for Henry Waxman, chairman of the House Energy and Commerce Committee. He demanded that CEOs from the major companies appear before him on April 21 to explain just what's going on. "These assertions appear to conflict with independent analyses," said the chairman, "which show that the new law will expand coverage and bring down costs."
"When I use a word, it means exactly what I want it to mean, no more, no less," says Humpty-Dumpty in Alice and Wonderland. "When we pass a law, it will do exactly what we want it to do," say the Democrats in Congress. Never mind economics, never mind common sense. "Our analysis said premiums should go down, not up!" That will bring a call for federal price controls. This melodrama is already being played out in Massachusetts, where an identical reform has produced the highest insurance rates in the country. At some point here, the voice of Rep. Dennis Kucinich will begin to echo through the land: "Why not just turn the whole thing over to the federal government?"

This is typical of Washington -- too many lawyers, too few people who understand business or energy or insurance or medicine or whatever the government has decided to regulate.

But I would add one caveat to all this. Take another look at those Caterpillar/AT&T/3M numbers. Caterpillar's $100 million represents only one small portion of the health benefits the company is now conveying to its retired employees. Imagine the value of all the health benefits passing to all its employees, working and retired. It obviously exceeds $1 billion. And that's just one company.

What the Caterpillar/AT&T/3M numbers reveal is that employee healthcare benefits have become a huge 'underground economy' operating outside the conventional system. Remember, all these benefits are tax-free. Because the government doesn't take a share, both employers and employees have come to prefer expanded health and retirement benefits to ordinary compensation. (How many people are holding jobs "just for the benefits"?) This distortion is what is ailing the healthcare economy and the reason it has not been policed by the people. It is also an untapped source of revenue for the government (much like the 'death tax') and they are going after it!

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