The news on healthcare reform this week is that right off
the bat, the major corporations are discovering they will be
losing stunning amounts to taxes as a result of Obamacare.
Caterpillar, the first to speak out, reported it will take
a one-time write-down of $100 million in order to account for the
elimination of a federal tax refund it has been receiving for
providing drug benefits to its retired employees. In the
following days, AT&T, Verizon, 3M, Deer & Co., and AK
Steel Holdings announced they would take similar write downs.
AT&T’s new tax bill will come to over $1 billion. The news is
a body blow to major companies hoping to recover profitability
and add jobs.
If all this sounds familiar, it should. It is exactly what
Republicans predicted would happen if Obamacare became law. If
existing employee benefits were taxed or made more expensive, the
GOP argued, employers would either have to absorb the loss or
start pushing their employees into whatever “government option”
became available. When the Bush Administration adopted Medicare
Part D in 2003, companies threatened to do just that, dropping
their coverage and letting retirees buy into the federal program.
The government offered a tax refund of about $650 per retiree in
order to keep Part D costs down. Now the Obama Administration has
decided to eliminate the tax refund in order to pay for the
larger entitlements in the new bill.
All this, however, was too much for Henry Waxman, chairman
of the House Energy and Commerce Committee. He demanded that CEOs
from the major companies appear before him on April 21 to explain
just what’s going on. “These assertions appear to conflict with
independent analyses,” said the chairman, “which show that the
new law will expand coverage and bring down costs.”
“When I use a word, it means exactly what I want it to
mean, no more, no less,” says Humpty-Dumpty in Alice and
Wonderland. “When we pass a law, it will do exactly what we
want it to do,” say the Democrats in Congress. Never mind
economics, never mind common sense.
This is typical of Washington — too many lawyers, too few
people who understand business or energy or insurance or medicine
or whatever the government has decided to regulate. The laws of a
society are supposed to administer justice and make things run
smoothly. Instead, the law in America has become a tool for
forcing other people to do what you want. That’s why everybody
wants to become a lawyer and nobody wants to become an engineer,
scientist, doctor or — god forbid — an insurance company
executive. Now that the results of Obamacare are emerging, the
demonization of insurance companies that greased its passage will
soon extend to American business as a whole.
Republicans are taking heart in this, and well they should
— up to a point. The battle over the next six months will be to
convince the public whether or not Obamacare is working as
planned. CNN got the ball rolling the first day by
discovering two people who will benefit from the new
legislation:
Erica Mohamed, 31, of Houston, Texas, is separated, and has a
6-year-old son, Jeremiah, with a rare congenital heart disease
called Tetralogy of Fallot. He has had three open-heart
surgeries already, and will need to have another procedure to
remove a stent in early adolescence. Mohamed’s job, through
which she gets insurance, is not secure.…
Ira Bennett, 47 and self-employed without insurance, is
HIV-positive, and had a heart attack in his early 40s. He
estimates his income is about $500 a month from doing yard work
and watching a friend’s house. Since he couldn’t pay for the
$70,000 bill for his heart attack treatment, the costs fell to
the state and federal government. Paying for his AIDS
medications, costing around $2,000 a month, also falls to
federal funding through the Ryan White Care Act.
Whether such heart-tuggers will resonate with the public is
an open question. What is interesting to note is that in each of
these instances, the unfortunate individuals
did receive medical care — and very
expensive care at that. Obamacare’s only apparent improvement
will be to transfer these costs to commercial insurers.
The result is easy to predict — although you’d never
convince Rep. Waxman of it. Insurance company costs will soar
from taking on hordes of people with pre-existing conditions.
They will try to raise premiums — at which point Rep. Waxman
will proclaim, “Our analysis said premiums should go
down, not up!” That will bring a call for
federal price controls. This melodrama is already being played
out in Massachusetts, where an identical reform has produced the
highest insurance rates in the country. At some point here, the
voice of Rep. Dennis Kucinich will begin to echo through the
land: “Why not just turn the whole thing over to the federal
government?”
That’s one scenario. The other is that the American public
will not be fooled by any of this. They will recognize that it
the evil insurance companies and businesses are not to blame, but
that it is Congress that has created a flawed system. In a
restrained and dignified manner, they will express their verdict
by voting the Democrats out of office next November and replacing
them with knowledgeable legislators — preferably non-lawyers and
non-career-politicians — who can understand the
situation.
THIS IS WHAT MOST of us would prefer. But I would add one
caveat to all this. Take another look at those
Caterpillar/AT&T/3M numbers. Caterpillar’s $100 million
represents only one small portion of
the health benefits the company is now conveying to its
retired employees. Imagine the value of
all the health benefits passing to
all its employees, working and retired.
It obviously exceeds $1 billion. And that’s just one
company.
What the Caterpillar/AT&T/3M numbers reveal is that
employee healthcare benefits have become a huge underground
economy operating outside the conventional system. Remember, all
these benefits are tax-free. Because
the government doesn’t take a share, both employers and employees
have come to prefer expanded health and retirement benefits to
ordinary compensation. (How many people are holding jobs “just
for the benefits”?) This distortion is what is ailing the
healthcare economy.
Intelligent observers have noted this all along. Writing in
the Wall Street Journal, Holman Jenkins
concludes:
Let us flip back to an epic series of Senate Finance
hearings in 1992. They represented a remarkable meeting of
minds across a broad swath of health-care wonks and economists
(not interest groups) that the original
sin was the exclusion of employer-provided health insurance
from taxable income
— imposed
carelessly by the IRS in 1943 so defense contractors could
compete for workers without transgressing Roosevelt-era wage
and price controls. [My emphasis.]
Outlining his plan for healthcare reform in
Imprimus, Congressman Paul Ryan
says the same thing:
One, we should equalize the tax treatment of people paying for
health care by ending the current discrimination against those
who don’t get health insurance from their jobs — in other
words, everyone paying for health care should receive the same
tax benefits.
The exclusion of health benefits from taxation has left
nearly half the population in tax-free employer benefits plans
while the other half roams the wilderness, trying to buy
insurance that is subject to both taxation and expensive state
mandates. Employer benefits plans are not “insurance” at all,
they are prepaid medical care. Often they come with few or no
deductibles or co-payments. Because half the population is
getting this huge tax-free benefit, the insurance companies are
asked to provide the same thing to the other half
without the tax advantages. Naturally,
they cannot do it. Their costs are driven even higher by
expensive state mandates and the removal of a very healthy
portion of the population — the corporate work force — from
national insurance pools. Viewing this situation, the Democrats
have discovered an “insurance crisis” and decided only a
government takeover of the healthcare industry will do.
The fairest and most efficient reform would be to give
everyone the same tax benefits. Allow individuals to put aside
$3,000-5,000 tax-free to cover their medical expenses. A portion
could be used to buy “catastrophic coverage,” which is really
plain ordinary health insurance for major expenses. This is what
medical savings accounts (MSAs) do. Indiana has provided coverage
for 45,000 low-income individuals by
giving them $1,100 tax-free for their
medical expenses and covering them beyond that up to $300,000
through commercial insurance policies. Unfortunately, the program
— which is highly successful — is outlawed by Obamacare.
Congress does not like to see people left to handle their own
affairs.
There’s one other caveat in here worth noting as well.
Labor union members in private corporations — almost all covered
by “health benefits” — are now a
minority of union members. The majority
is working for the government. But governments won’t face the
same squeeze as Caterpillar, 3M and AT&T. After all,
governments don’t pay taxes. While
Caterpillar, Verizon, and other major employers will be forced to
cut back somewhere, government employment will just keep getting
bigger and better.
In fact, many observers are predicting Obamacare may be the
tipping point where — as in Europe and most of the world —
government becomes the “employer of first choice.” The salaries
and benefits of government employment already exceed those of the
private sector. With the pressure Obamacare is placing on
private corporate benefits (but not
government benefits), these advantages will only get better.
Moreover, Obamacare is creating government jobs. The IRS is
already gearing up to hire 17,000 new employees to enforce the
new taxes and mandates. As Washington prospers, so the rest of
the country continues to stagnate.
The only alternative is that Republicans and Tea Party
rebels seize control of the government next November
and institute a healthcare reform that
distributes health benefits in a fair and just manner while
saving the private enterprise system. Otherwise, we may already
be past the tipping point.
