Since the passage of the Democratic health-care-nationalization bill, a number of companies have announced that the bill will increase their health care costs dramatically and possibly will require them to reduce their employees’ health care benefits. AT&T wrote down $1 billion, Deere $150 million, Caterpillar $100 million, 3M $90 million, and AK Steel $31 million. Verizon didn’t state a figure yet, but it could easily run into the billions.
There are several interesting tendrils of the story:
- This is exactly what opponents of the bill predicted would happen. The Democrats’ assurances that no one would lose their health care was all poppycock.
- The worst is yet to come. These write-downs are all (I believe) as a result of two factors, the cut in subsidies under Medicare part D (that’s prescription drugs for retirees) and the “Cadillac tax” on high-value health plans. These effects are minor compared to what’s coming. Once insurance companies are barred from using actuaries to set fair prices, are required to cover pre-existing conditions, and once policies are required to cover a raft of services that many do not cover now, prices are going to soar.
- Democrats, stung by the bad publicity, are demanding that the CEOs of those companies appear on Capitol Hill for a tongue-lashing. The message is clear: don’t expose what we’ve done.
- The hilarious thing is that these write-downs are required under generally accepted accounting practices. Megan McArdle explains:
Accounting basics: when a company experiences what accountants call “a material adverse impact” on its expected future earnings, and those changes affect an item that is already on the balance sheet, the company is required to record the negative impact–”to take the charge against earnings”–as soon as it knows that the change is reasonably likely to occur.
This makes good accounting sense. The asset on the balance sheet is now less valuable, so you should record a charge. Otherwise, you’d be misleading investors.
The Democrats, however, seem to believe that Generally Accepted Accounting Principles are some sort of conspiracy against Obamacare, and all that is good and right in America.
- In fact, under Sarbanes-Oxley, companies are required by law to make these disclosures.
- The Medicare part D subsidy that is being cut was originally designed as an incentive for private companies to keep retirees on their prescription plan and off Medicare. Now it’s being labelled as “corporate welfare“:
Remember: Subsidies and tax breaks 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 decide they want to take over an activity entirely.
- The subsidy is being cut as part of the Democratic effort to rig its bill’s CBO score. According to the CBO score, it will save $5.4 billion. But that’s assuming the CBO’s usual static analysis. That is, it assumes companies will not drop drug benefits for retirees in response to the subsidy cut. This is almost certainly counterfactual. When companies dump millions of retirees into Medicare drug coverage, it will cost much more than the $5.4 billion that the cut supposedly saves.
- Again, this is exactly what opponents of the bill predicted would happen: the bill will cost much, much more than the official figures predict.