A WSJ Editorial: The Writedowns on the New Healthcare Bill Begin to Roll In

Posted by Kendall Harmon

It's been a banner week for Democrats: ObamaCare passed Congress in its final form on Thursday night, and the returns are already rolling in. Yesterday AT&T announced that it will be forced to make a $1 billion writedown due solely to the health bill, in what has become a wave of such corporate losses.

This wholesale destruction of wealth and capital came with more than ample warning. Turning over every couch cushion to make their new entitlement look affordable under Beltway accounting rules, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare. We and others warned this would lead to AT&T-like results, but like so many other ObamaCare objections Democrats waved them off as self-serving or "political."

Perhaps that explains why the Administration is now so touchy. Commerce Secretary Gary Locke took to the White House blog to write that while ObamaCare is great for business, "In the last few days, though, we have seen a couple of companies imply that reform will raise costs for them." In a Thursday interview on CNBC, Mr. Locke said "for them to come out, I think is premature and irresponsible...."

On top of AT&T's $1 billion, the writedown wave so far includes Deere & Co., $150 million; Caterpillar, $100 million; AK Steel, $31 million; 3M, $90 million; and Valero Energy, up to $20 million. Verizon has also warned its employees about its new higher health-care costs, and there will be many more in the coming days and weeks....

Read it all.

Filed under: * Culture-WatchHealth & Medicine--The 2009 American Health Care Reform Debate* Economics, PoliticsEconomyCorporations/Corporate LifeThe U.S. GovernmentPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

Posted March 27, 2010 at 4:01 pm [Printer Friendly] [Print w/ comments]

1. Br. Michael wrote:

I see.  Let’s cook the books so that Obama looks good.

March 27, 7:00 pm | [comment link]
2. julia wrote:

Actually makes him look bad. A company that takes care of retiree prescriptions gets taxed higher.

March 27, 7:22 pm | [comment link]
3. Branford wrote:

That’s okay - Congress is now demanding that AT&T, Deere, and Caterpillar appear before them explaining their analysis. Nothing like a little political regulatory intimidation.

March 27, 7:26 pm | [comment link]
4. Kendall Harmon wrote:

Let’s all take it easy #1 about jumping prematurely to conclusions and make sure we read the arguments and sift through the evidence.

March 27, 7:49 pm | [comment link]
5. montanan wrote:

I believe many folks will be surprised when they realize they are being taxed for their employer’s contribution to their health insurance - which is mandated in the legislation and which starts this year or next (I’m not sure which).

March 27, 8:35 pm | [comment link]
6. Branford wrote:

From Powerline:

A reader writes:

Good post on the true cost of ObamaCare. But it gets better: the Dems are now shaking down CEOs who don’t get with the program. In the attached letter, Henry Waxman not only orders the CEOs of AT&T, Caterpillar, Deere & Co, and Verizon to testify before the Energy and Commerce Committee, but also to produce internal analyses and emails related to their statements. They don’t expressly subpoena the CEOs, so we can hope that they tell the Dems to GFY, though somehow I doubt that will happen.

The Dems sent these letters to the Republicans on the committee after 6pm tonight with no advance notice or prior cooperation.

A copy of the letter is at the link.

March 27, 9:10 pm | [comment link]
7. dwstroudmd+ wrote:

Heard any executive orders lately?

Cough it up, boys and girls.  We’re from the government and were here to make sure you help us help you.  Capiche?

March 27, 9:38 pm | [comment link]
8. Daniel wrote:

How about this one.  Say you were a night janitor, because having attended an inner city school, you were not able to go to college and had to work two jobs to provide for your family.  You decide to take the risky step of starting your own cleaning business.  You work 80-90 yours a week at your day job and your new business trying to get it off the ground.  You succeed and are able to work at your new business full time.  You still work 80-90 hours a week expanding your business and providing work opportunities for others who started out like you.  Through very hard work and perseverance you now have over 50 employees working for you.  You are generous and have provided a high deductible health plan for your employees and matched contributions to their health savings accounts.

You have not taken an excessive salary, preferring instead to plow money back into your business with the expectation that when you retire, you can sell your thriving business and live off the profit you get from selling it.

Oops! Health care hits!!  You now have to provide “full care” health benefits to your 50+ employees which is a big hit to profits since it costs a whole lot more than what your were providing.  Do you run your business at barely break even, or do you lay off enough employees to get you below the 50 employee threshhold for mandated health care?

Well, even if you slim down the business, it still will provide you with a good retirement.  Ooops! Capital gain taxes are going up by 33% next year.  Instead of paying 15% tax rate, you have to pay 20%.  That’s O.K., the business should still net your a profit of $400-500K.  Oops!  That profit from a lifetime of hard work makes you part of the evil rich and you have to pay an extra 4% Medicare tax on the profits from the sale.  Hope your retirement investment income is below $250K or you’ll have to pay 4% Medicare tax on this, too.

Gee, isn’t sharing the wealth fun.  You’ve put people out of work and lost money you worked your a** off for so you could enjoy your retirement.  See, isn’t Obamanomics fun.

March 27, 10:55 pm | [comment link]
9. Katherine wrote:

I am having a hard time believing that the Commerce Sec. and the Congressional committee don’t understand the law.  GAAP require that companies recognize the present value of future obligations as soon as they become aware that those obligations exist.  The health care law creates liabilities and costs which must be recognized and dealt with financially.  To fail to do so is fraud.  Is the Congress now going to be in the business of re-writing corporate balance sheets and income statements based upon political needs?

March 27, 11:41 pm | [comment link]
10. robroy wrote:

Daniel brings up an interesting point about small businesses with employees numbering around 50. Was able to find 2004 statistics about number of employees in businesses here. It states that there were 600,000 small business with 20 to 99 employees. Assuming a flat distribution, that would mean 600,000 x (10/79) = 80 thousand businesses with 50 to 59 employees. Assuming all these firms would shed employees to get below the 50 mark, that would be an average of 5.5 employees. So we are talking or over 400 thousand newly unemployed. And there would also be 80 thousand businesses in the 40 to 49 category which would be very resistant to hiring new employees.

March 28, 10:46 am | [comment link]
11. William P. Sulik wrote:

Thank you Katherine - this is a very important point.  These companies are not undertaking political theater - if any of them fail to do this they would be prosecuted just as the Enron execs were prosecuted.

March 28, 1:48 pm | [comment link]
12. dwstroudmd+ wrote:

Interesting if one thinks about the ramifications:


March 28, 7:12 pm | [comment link]
13. Scott K wrote:

#5, that is not correct (about employees being taxed for employer contributions to their healthcare).

I suspect you are referring to the new requirement that employer contributions to employee healthcare be reported on the employee’s W2. This is true and like you, I can’t recall if that goes into effect this year or next. Regardless; this contribution is simply reported; it is not added to the employee’s taxable income.

March 29, 12:05 pm | [comment link]
14. Scott K wrote:

And #8, you’ve conveniently left out the small business healthcare subsidy and tax breaks that the janitor and his business would receive; or the option of not providing health care and instead paying the much less expensive penalty (exempted for the first 30 employees) and allowing his employees to purchase their own coverage through healthcare exchanges.

March 29, 12:10 pm | [comment link]
Registered members must log in to comment.

Next entry (above): New Chelmsford Bishop is Essex born and bred

Previous entry (below): NPR—Jesus, Reconsidered: Book Sparks Evangelical Debate

Return to blog homepage

Return to Mobile view (headlines)