Sunday, March 28, 2010

The REAL Reason Companies Like AT&T Are Whining Over Healthcare Reform

Conservative media have been buzzing over recent press releases from companies like AT&T, Deere & Co., and Caterpillar, Inc., which claim that these business will lose millions or even up to $1 billion dollars as a result of healthcare reform. These reports, however, do not tell the full story.

The "losses" result from the elimination of a tax loophole that effectively operated as a double-subsidy for these (and many other) companies. Under the loophole, the government subsidized 28% of companies' expenditures on prescription drugs for Medicare beneficiaries. The government, however, allowed these same companies to deduct 100% of their expenditures on prescription drugs for Medicare beneficiaries -- including the 28% given to them by the government.  The new law eliminates this excessive incentive by capping the deduction at 72% (100% minus the 28% subsidy). The subsidies, however, remain tax-free, just as they were before the reform legislation was enacted.

The original law is analogous to a hypothetical situation where Congress gives people money to pay the interest on their mortgages, but then allows them to deduct their entire mortgage interest expenditures on their tax returns. As attractive as that scenario sounds to me as a homeowner, I recognize its excess.  The same setup for businesses is excessive, in my opinion.

I do realize, however, that the companies might ultimately shift these costs back to the government in subsequent years by reducing coverage of prescription drugs.  Ironically, given their criticism of the legislation, conservatives apparently want more expenses for the government and more handouts to companies.  This, however, is not a conservative value.

UPDATE: The Wall Street Journal reports an additional aspect of the subsidy structure that benefits companies. Companies can receive the subsidy to cover expenses for prescription drugs that retirees eventually pay. That "loophole" remains.

JUST ADDED: Say What??? Conservatives Complaining About the Elimination of Corporate Welfare Associated With Socialized Medicine

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