By now you probably know that Obamacare is costing, big time. AT&T, Verizon, Caterpillar, Deere & Company, 3M — any large corporation with significant health-care obligations to retired workers is taking a major hit to its quarterly earnings statement. The damage could total as much as $15 billion.
The write-downs are the result of a tax change in the Democrats’ health-care legislation. When the Republicans created the Medicare Part D prescription-drug entitlement in 2003, they decided to build in a subsidy for private employers to keep them from dumping their retirees into the Part D program. The logic behind the move was simple: If the private sector is already chipping in its own capital to provide a benefit, and if people are happy with their plans, then it would be best to look for ways to help the private sector to keep providing that benefit and sharing the cost, rather than disrupt existing arrangements and burden taxpayers with the whole cost.
For companies offering retiree drug coverage, the government agreed to pay 28 percent of the cost. It also agreed not to count the subsidy against an existing tax deduction for retiree drug benefits. The logic behind this was also simple: Prior to the subsidy, companies were paying the whole cost of offering the benefit, and taking the whole tax deduction. This tax deduction was an important incentive for companies offering the benefit. Reducing its value by 28 percent would have weakened the incentive for companies to keep paying for a benefit that their employees could get from the government. This was true even though the government was offering to subsidize 28 percent of the plan’s cost.
At least we have good reason to believe the incentive mattered, because now that Obamacare has repealed the deduction — even though it leaves the subsidy in place — many of these companies are warning employees in private memos that drug coverage for retirees may be a thing of the past. In just such a memo, Verizon cautioned that the tax change, “will make [the subsidy] less valuable . . . and as a result, may have significant implications for both retirees and employers.”
Obamacare’s authors repealed the deduction as part of a bid for a better score from the Congressional Budget Office, which counted the revenue from the repeal (around $5 billion) but did not estimate the costs stemming from the likelihood that many companies would probably drop their retiree drug benefit and dump their retirees into the public system. Nor is this just a matter of fiscal chicanery: It could have real consequences for retirees who prefer their private plans. According to a study prepared by Towers Watson, a consultancy, employer plans are on average more generous than Medicare Part D plans. So much for keeping the plan you like.
Naturally, opponents of Obamacare have seized on the billions in write-downs, the possibility of tens of billions in additional Medicare outlays, and the prospect of angry and cheated retirees, to affirm the predictions they made about Obamacare being more expensive and disruptive than advertised. To combat such accusations, Obamacare supporters within government and without are following a two-track strategy.
Within government, the plan appears to be to intimidate companies into taking the charge like a man. House Energy and Commerce Committee chairman Henry Waxman has cordially invited the heads of AT&T, Caterpillar, and Deere to visit his committee and explain themselves. Outside of official channels, liberal commentators are harmonizing around the charge that conservatives are hypocrites for supporting “corporate welfare” opportunistically. At ThinkProgress, Igor Volsky asked, “Why Aren’t Fiscal Conservatives Outraged By The Wasteful Prescription Drug Subsidy?” MarketWatch’s Cody Willard mocked, “HEY, BIG GOVERNMENT, KEEP YOUR DAMN HANDS OFF MY SUBSIDIES AND ENTITLEMENTS!” And the Washington Post’s Ezra Klein “>wrote, “Let’s be clear: It is corporate welfare being defended, not the market.”
The response to all of this is pitifully obvious: The retiree drug subsidy — this egregious example of “corporate welfare” — would not be necessary if a Republican-led government had not taken a Democrat-designed social-welfare apparatus and appended a massive expansion (now there’s your hypocrisy). In other words, this bit of corporate welfare was designed to keep people off of actual welfare, broadly defined. It takes some nerve to ignore this basic context when lobbing these accusations of hypocrisy.
But there is another, more important point to keep in mind here. The people hurling these accusations just supported one of the biggest corporate-welfare programs our nation has ever created. Obamacare subsidizes the purchase of health insurance and forces people to buy it. Many liberals who opposed the bill because it lacked a “public option” — a government-run insurance program — semi-accurately characterized it as a bonanza for the private insurance industry. As former DNC chair Howard Dean wrote in the Washington Post, the Senate bill “expands private insurers’ monopoly over health care and transfers millions of taxpayer dollars to private corporations” — and nothing in the package of reconciliation “fixes” that Obama signed on Tuesday would alter that basic fact.
But the characterization is only semi-accurate, because Obamacare sets up the next step in the process by which a basically conservative citizenry can be made to accept radical changes in its relationship with, and dependence on, the federal government. The next step — create a public option — will never be far from liberals’ thoughts. “It will be revisited,” said Sen. Tom Harkin (D., Iowa) of the public option. “I’m just saying, I believe it is so vital and so important that it is going to be revisited.”
The final step? Demonize all that came before — all the tax credits, all the subsidies, all the mandates — as “corporate welfare.” Tell the citizenry that it’s time to stop lining the fat cats’ pockets in pursuit of these public goals; that the government can do it cheaper, better, with greater attention to the equality of outcome. Viewed from the left, corporate welfare is not a grant, it’s a loan — a predatory one. Subsidies and tax breaks are are first sold as necessary carrots in the delicately balanced, expertly engineered Rube Goldberg machine that is our welfare state; they only get labeled as “corporate welfare” when the Democrats want the money back.
It happened with student loans just yesterday. It is happening with the Medicare Part D retiree drug subsidy now that it threatens to make Obamacare even less popular. And it will happen tomorrow with the entire health-care system, unless Obamacare opponents devote themselves to repeal.
– Stephen Spruiell is an NRO staff reporter.