In 2003, Congress decided to hand out a subsidy to employers to encourage them to keep paying for prescription drug benefits for retirees—figuring that the subsidy would ultimately cost less than allowing all or most of those folks to end up on the public's prescription-drug dole. This subsidy, Congress decided, would not be taxed.
Under the Affordable Care Act, however, Congress reversed that decision. The subsidy is now taxable.
And, as we've already seen, that's going to cost big companies a lot of money. In the week following the passage of the Affordable Care Act, a number of high-profile companies took giant write-downs as a result of the law's changes to the tax code. AT&T, for instance, took a $1 billion charge. Caterpillar took $100 million.
Health care reform critics argued that the write-downs showed that the law caused immediate, severe economic effects; boosters replied that the provision in question merely closed a years-old tax loophole.
Naturally, House Energy and Commerce Committee Chairman Henry Waxman called a hearing. After all, it's widely believed—at least inside the Beltway—that big corporations cannot handle their own accounting without Congressional inquiry meddling help. Now, though, it looks like they'll have to do their books alone: At the last minute, Waxman canceled the show. Why? The Daily Caller's Jonathan Strong reports:
Publicly, Waxman said the investigation showed the companies’ disclosures were properly filed. But a new report from committee Republicans reveals the documents Waxman obtained included embarrassing evidence that the health-care law could drive up insurance premiums and force employers to dump employees from their health plans.
“Turns out Obamacare means if you like your health plan you can lose it. The president didn’t have to actually strong-arm companies into dumping their employee health insurance because his bill carried financial incentives to virtually guarantee that result,” Energy and Commerce Committee ranking member Rep. Joe Barton, Texas Republican, said.
Most significantly, documents unearthed by the investigation highlight companies that are considering dumping employees from their current health-care plans in the face of new costs from the health-care law. President Obama repeatedly promised his health-care law would let Americans keep their current insurance if they’re happy with it.
A March 3 internal Verizon memo on the impact health-care law said new taxes on insurance companies and health-care equipment manufacturers will be passed onto employers through higher prices.
Facing such increased costs, employers like Verizon “may consider exiting the health-care market and send employees to the exchanges,” the memo says.
On the matter of whether or not the health care law closed a loophole, I tend to more or less side with former CBO director Donald Marron. His take is that, yes, the Affordable Care Act closed a tax loophole, but it was a loophole that Congress had decided to insert in order to save money, and closing it will, in fact, result in significant private sector losses compared to what would have happened had the ACA not passed.
Ideally, of course, Congress would have never passed the Medicare prescription drug benefit to begin with, and thus never handed out the initial subsidy. That way this whole kerfuffle could have been avoided entirely. And the broader point I'd draw from all of this isn't so much that the Affordable Care Act is going to cost big corporations billions—though it certainly is—but that the health care sector is so thoroughly dominated by government regulations and subsidies that exercise far, far too much influence over how decisions about health care and its associated costs get made. So rather than argue over the tax treatment of drug subsidies, we ought to be pushing to get rid of the subsidies entirely.