The Right Prescription

Deere in Obama’s Headlights

Obamacare bulldozes its first victims.

By 3.26.10

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What do Caterpillar and John Deere have in common? Besides being America's two biggest makers of heavy equipment, they have both announced huge increases in expenses due to ObamaCare. Wednesday, Caterpillar made official its estimate of $100 million in increased costs for 2011, though they will take the charge this year. Yesterday, John Deere said it will face an additional $150 million in increased costs for 2010 in order to comply with the Democrats' assault on America's health care and health insurance systems, eliminating about 11% of the company's profits for the year.

In particular, the charges come from changes in tax regulations for contributions to employees and retirees' health care benefits.

As the Wall Street Journal explains (about Caterpillar):

The world's largest construction equipment manufacturer by sales, warned last week that provisions in the legislation would subject the company to federal income taxes on the subsidies it receives for providing prescription drug benefits for its retirees and their spouses.

Since the Medicare Part D program was enacted in 2003, Peoria, Ill.-based Caterpillar and more than 3,500 companies that already provided drug-benefit expenses to retirees have received tax-free subsidies as an incentive to maintain their drug programs.

The subsidies average $665 per person covered under a company-sponsored prescription program, according to benefits consultants Towers Watson.

About 40,000 Caterpillar retirees receive company-sponsored drug benefits, which are more generous than Medicare's drug plan, which requires recipients to pay some out-of-pocket expenses.

The charge is expected to be a one-time cost, but Caterpillar has argued that higher taxes and other potential cost increases related to insurance coverage mandates in the legislation will hinder the company's recovery this year after a 75% plunge in income during 2009.

"From our point of view, a tax increase like this cannot come at a worse time," said Jim Dugan, a Caterpillar spokesman.

So, in two days, we have two major companies -- major American employers -- who between the two of them will have a quarter billion dollars less with which to pay employees, invest in new plant and equipment, spend on advertising and marketing, pay dividends to shareholders, and broadly contribute to the American economy.

And that's just the first two big companies to announce the impact of ObamaCare, and just for one provision of the bill. Keep in mind that these charges represent the sorts of increased costs that the companies would face with every new employee, giving them strong incentive -- 250 million incentives just for starters -- to avoid hiring in America.

ObamaCare is in its own way a jobs bill. Unfortunately, the jobs it creates are in other countries.

Also, note that these tax hikes relate to Medicare Part D. Although Part D, which provides prescription drug coverage to seniors, is an unconstitutional function of government and has an unfunded liability roughly equal to that of the entire Social Security System, there is one good thing to say about it: It is the only major entitlement which has consistently come in under-budget and had its cost estimates decreased over time (except for immediately after its passage when they had to change the Bush Administration's lie about its cost).

The reason Part D has been "successful" in that sense is that it uses private market competition to discipline prices. The Democrats wanted government to negotiate drug prices. The Republicans and George W. Bush got Part D passed with a structure that gets dozens, even hundreds, of plans competing with each other on the basis of benefits, service, and price. (A brief search on the Medicare.gov website showed me 46 Part D plans available in my area to a hypothetical 70-year old in good health.) And this, along with the also-market-oriented Medicare Advantage programare the parts of Medicare that Democrats are particularly gunning for because they fear private markets -- which inconveniently give better outcomes than government. Progressives oppose true competition and thus want to eliminate any evidence that free markets work, especially in health care.

Some people argue that government involvement in health care is necessary because health insurance does not function as a real market. While they are right that the health insurance market doesn't function particularly well, they miss the obvious point that that's the case because of government regulation as well as the separation between health care consumer and provider for payment of those services. Nearly half of all medical spending today comes through government programs. Almost none of today's medical spending is paid for by people actually receiving the care...also an outcome of government manipulation of private behavior through the tax code. And Democrats want it that way; after all, it's a lot easier to demonize a market when there actually isn't one.

Add to that the fact that government prevents interstate competition within the health care industry, and you have most of the difference between the health insurance market and the auto insurance market. The former is a product/service with which most people who have it are satisfied (something you'd never guess from Democrat rhetoric) but which most also believe could be both better and cheaper. Car insurance, on the other hand, with its relatively large deductibles (meaning people have some skin in the game when making a claim) and its intense interstate competition is a product that most people are not only happy with, but they hardly spend any time worrying about. Public policy should consider this obvious comparison and work to make health insurance more like car insurance, not least the fact that car insurance doesn't cover events that everyone knows are coming, like wiper blade replacement and oil changes.

To be sure, there have been plenty of examples of bad behavior by health insurers which make it easy to demonize the industry when governing by anecdote. But the bottom line remains that the Democrats' answer to the health insurance system's ills is analogous to medieval hocus-pocus. By just giving the system more of the government regulation and control which is poisoning it, Obama reminds us most of a 12th century "doctor" who bleeds a patient suffering from a disease and then, when the treatment doesn't work, says "I must not have taken enough blood." With the benefit of modern science and experience, the sad end of those patients was predictable as is the end of the health insurance industry and a persistently higher baseline level of American unemployment (and Chinese employment) if ObamaCare is not repealed or gutted.

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.