Incredibly high fictitious cost of health care

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.

8 thoughts on “Incredibly high fictitious cost of health care

  1. Frank Povah

    Shame on you, Lee. Big business – from Big Oil to Big Coal to Bigger Cars – is constantly running teevee commercials telling us all of the good things they are doing for America and here you are doubting their word.

    Ah words. The off ox was also farthest from the driver, and hence the whip, so could sometimes get away with pulling less than its fair share of the weight. In Australia the term off-sider is used in the same sense as the US “sidekick”, i.e. a companion or assistant. Someone who doesn’t pull his weight is said (by my generation at least) to be “on the pole” (noun a “poler”) from the pole horses in a team – those harnessed on either side of a tongue or pole on the wagon used partly as brakes and steering and because of their position in the team were often able to get away with doing less than their share in hard going.

    To pay homage both to your essay and your etymology, I’d like to quote a fragment from an Australian traditional poem which to my mind also nicely sums up my attitude to the way in which US (and Australia and no doubt everywhere else) citizens are being treated by their politicians, laughingly known as representatives. It’s called “Bill the Bullocky” or “Nine Miles From Gundagai”.

    The offside bullock broke the yoke,
    And poked out the leader’s eye;
    And the dog shat in the tucker box,
    Nine miles from Gundagai.

    They cleaned up the poem by making the dog sit on the tucker box and built a statue of him doing so, but it doesn’t change the truth of the tale nor Bill’s rancor.

    Bill concludes:

    I can forgive the bullocks and that awful night of rain;
    I can forgive the blacksoil flats and go through them again;
    But upon my sacred bloody oath, until the day I die,
    I won’t forgive that bloody dog, nine miles from Gundagai.

    Reply
      1. Monica Smith

        Wonderful indeed. And why I believe in extrasensory perception. As you were likely composing this, I put up a post on Hannah entitled “Cook spitting into the soup” to preserve one of Charlie Cook’s screeds, which starts out with the sentence, “As we head toward November’s midterm elections, the outlook remains dire for Democrats” and goes down hill from there. The spouse would probably tell me it’s atavistic behavior. Now I see that atavistic regression is an Australian contribution to psychiatry.

        Reply
  2. Meg Gerrish

    You may scoff. You’ll probably have a belly laugh. Possibly you’ll hurl at the very idea. But I suggest it here, I say it now: Senator Lee Leslie.

    Reply
    1. Lee Leslie Post author

      Sweet sentiment, but I’m sure my mom left my birth certificate back in Kenya. Let me just say, that I’m willing to run if nominated and to serve if elected, but I believe that we need the smartest people in office -- not the smart ass people. Thanks.

      Reply
  3. Cliff Green

    Lee, a correction: In 2003, George Herbert Walker Bush was not in the White House. His son, George Dubby was.
    Nevertheless, thanks for unmasking those who claim that any change in the way they must do business represents the end of the world as we know it.

    Reply
    1. Monica Smith

      Oh, he was there in spirit, if not in person, every hour of the day and night. Dubya lied. I never bought the “higher father” line. Barbara, unpleasant as it was, spoke the truth. They didn’t think Dubya was smart enough and he wasn’t. And Cheney, unleashed, has proved a downright embarrassment. It wasn’t Cheney that was in undisclosed locations; it was Poppy. He decided that being front and center was not his style. How else to explain that when crunch time arrived, the gang in Little Rock was given the OK to bail Clinton out? One thing conservatives are good at is getting Democrats to do their dirty work.

      Reply
  4. Lee Leslie

    Thanks, Cliff. Obvious errors make me feel even more foolish. Fortunately, you caught it before it went to press.

    Reply

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