Health care reform doesn’t go into effect for 3 more years, so why is it costing really really big businesses so much right now? In the last month, company after company has announced quarterly earnings and included huge accounting charges for health care costs.

Companies announcing charge offs for health care costs
“Why? For what? And should we be scared shitless?” Glad you asked. First off, except for exercising their Supreme Court given right to paid free speech, which resulted in hundreds of millions of dollars being spent on lobbyists to fight the health care reform bill, it hasn’t cost big business a nickel. Nothing. Nada.

Here’s what has happened. Way back in 2003, under Bush/Cheney, the brain trust in charge of our government at the time, decided to add a prescription drug benefit to those on Medicare. You probably wondered at the time, “what the hell do Republicans care about seniors?” Me, too. I knew they were having a difficult time squandering the Clinton budget surpluses so they could begin starving the states, so the states, in turn, could begin starving the poor. Plus, Bush Inc. had already paid off the campaign money they’d gotten from the super rich, the oil cartels, defense contractors and Wall Street. But they still owed big health insurance, big pharma and big business and thought they might be able to buy some senior votes in Florida, so they hatched this scheme: establish a huge new subsidy to create a private for profit prescription drug insurance plan industry to buy hundreds of billions of dollars of pharmaceuticals at non-negotiable retail and provide a tax subsidy to big business to help them get rid of workers at or nearing retirement age (Medicare Part D) – a real win-win. Even got Ted Kennedy to vote for it. Except for the donut hole, a diabolical stroke of campaign genius that must have Lee Atwater wish he could have come back from hell to enjoy it. But I digress.

The 2009 law gave big business a 28% tax deduction on retiree, or early retiree drug benefits, but it was more than just another corporate tax loophole. It was a tax-free treatment of the government subsidy to pay for companies providing the equivalent of Medicare Part D – the law gave them a subsidy and let them also deduct it from their taxes. Technically, accountants, lawyers and Adam’s house cat* refer to this as “double-dipping.” Republicans and the Chambers of Commerce refer to this as “pro-business.” When the new health care reform law goes into effect in three years, the subsidy will continue, but the tax deduction big business got for spending the subsidy will end.

snake oil“Then the tax deduction was worth billions of dollars?” you might ask. No, not by a long shot. In fact, the loss of the deduction will have almost no affect at all on company valuation or profit, but they’d like us to think it does. The explanation of how they came up with such extravagant numbers and why now, is a wee bit technical. Here goes: accounting rules require companies to recognize the present value today of future cash costs for as long as they offer the drug benefits and make this adjustment by writing down the deferred tax asset balances. Another way of saying it would be, they can pick any number they want and they can do whenever they want. These announcements are big businesses’ way of attempting to influence the off-year elections with the hope that the next Congress will give them back the deduction, which they don’t really use, doesn’t have any impact on jobs, but they are greedy and like to have more of whatever they want than they would ever need and don’t mind scaring the bejesus out of us as sport.

“But these tax deductions were real, so there’s a real cost to the companies’ investors, right?” In most cases, no. Big companies don’t pay taxes in America . That’s why we have those island governments just off our shores. According to the GAO’s most recent data (why it is so old, I have no idea, but I’m guessing that it has something to with providing political cover to those who write tax law), shows that two-thirds of US corporations paid no federal income taxes from 1996 through 2005 (those include the Clinton boom years) and 94% paid less than 5%.

So tomorrow when you read, “Company X earnings down due to health care reform costs,” just smirk and turn (or click) the page.

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*A variation of “Adam’s off ox.” The form commonly used is ‘not to know one from Adam’s off ox,’ meaning to have not the slightest information about the person indicated. The saying in any form, however, is another of the numerous ones commonly heard but of which no printed record has been found. But in 1848 the author of a book on ‘Nantucketisms’ recorded a saying then in use on that island, ‘Poor as God’s off ox,’ which, he said, meant very poor. It is possible that on the mainland ‘Adam’ was used as a euphemistic substitute. The off ox, in a yoke of oxen, is the one on the right of the team. Because it is the farthest from the driver it cannot be so well seen and may therefore get the worst of the footing. It is for that reason that ‘off ox’ has been used figuratively to designate a clumsy or awkward person.” From “A Hog on Ice” by Charles Earle Funk (1948, Harper & Row).

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Note: the post was edited on 4/23/10 to correct a stupid error of fact in paragraph 3. The original post, referred to “George Herbert Walker Bush” which was fortunately caught by alert reader/writer/commenter, Cliff Green.

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Lee Leslie

Lee Leslie

I’m just a plateaued-out plain person with too much time on his hands fighting the never ending lingual battle with windmills for truth, justice and the American way or something like that. Here are some reader comments on my writing: “Enough with the cynicism. One doesn’t have to be Pollyanna to reject the sky is falling fatalism of Lee Leslie’s posts.” “You moron.” “Again, another example of your simple-minded, scare-mongering, label-baiting method of argumentation that supports the angry left’s position.” “Ah, Lee, you traffic in the most predictable, hackneyed leftist rhetoric that brought us to the current state of political leadership.” “You negative SOB! You destroyed all my hope, aspiration, desperation, even.” “Don’t you LIBERALS realize what this COMMIE is talking about is SOCIALISM?!?!?!” “Thank you for wonderful nasty artful toxic antidote to this stupidity in the name of individual rights.” “I trust you meant “bastard” in the truest father-less sense of the word.” “That’s the first time I ran out of breath just from reading!” “You helped me hold my head a little higher today.” “Makes me cry every time I read it.” “Thanks for the article. I needed something to make me laugh this mourning.” “If it weren’t so sad I would laugh.” "... the man who for fun and personal growth (not to mention rage assuagion) can skin a whale of bullshit and rack all the meat (and rot) in the larder replete with charts and graphs and a kindness..."“Amen, brother.”