Skip to content

Health care hit didn’t take long

March 31, 2010

While most of the purported benefits of health-care insurance reform are years away, it took only a few days for a serious, unintended consequence to emerge.

Last week, telecommunications giant AT&T, which employs more than 280,000 people, announced it would take a $1 billion, non-cash, first-quarter loss because the bill ends an exemption on benefits for retirees.

Likewise, the largest maker of earth-moving equipment, Caterpillar, claims it will take a $100 million charge. Deere & Company, the world’s largest producer of agriculture equipment, will take a $150 million charge. 3M, maker of Scotch Tape and other products, says it will take a hit of as much as $90 million.

It’s all because a provision in the bill reduces the tax deductions for companies with drug coverage for their retired employees. The tax deduction and the subsequent government subsidies were designed to encourage those companies to keep their retirees covered rather than foisting them onto Medicare.

Now, it’s likely those companies and others will simply shuffle those once covered under the private sector to Medicare. If not, corporations could offset the costs with layoffs or shift the cost to consumers.

Some business groups say the provision is a blow to corporate profits, and also could discourage companies from hiring more workers. Reform backers say those charges are overblown.

Verizon already has notified its employees to expect changes to their benefit plans because, it says, the new law “may have significant implications for both retirees and employers.” And with more than 3,500 American companies no longer able to benefit from this tax structure, the number of employees affected is only going rise.

The tax exemption, offered as part of 2003’s Medicare Part D, was a means of incentivizing companies to keep retirees on their prescription drug coverage plans. The Obama administration claimed that closing this supposed loophole would raise about $4.5 billion over 10 years to help offset the cost of the nearly $1 trillion health care reform.

Yet The Associated Press has reported that a large utility company in Michigan already has stated it would recover all losses from its customers through rate hikes.

Instead of acknowledging that top-down economic planning usually brings with it some unintended costs, Rep. Henry Waxman, D-Calif., immediately politicized the news by attacking industry. Without any authority, Waxman demanded that AT&T, Verizon, Caterpillar, and John Deere justify the “costs the companies plan to book related to the new health-care law.”

Many of the hidden costs of this law will be evident soon enough, but we hope this provision doesn’t end up costing the country more than it was meant to save.