US businesses cannot afford the HC bill (Page 2)

Yes, which we currently pass on to the employee (We topped our coverage at $XXX/mo) - hoping they will collectively be more responsible with thier insurance use.  I'm expecting it to increase at a greater % with the HCB in law, and the government is going to require that employers cover X% (not sure what it is 60% i think), of an employee's insurance.  Sadly to say, it will probably be more economical for us to pay the fine and let our employees purchase from an exchange.

To me, this is what the government is banking on.  People can say all that they want about the government not creating a gov't run health care program, but this will force many employers to drop the responsability all together, driving people to the gov't exchanges.  Employers will not be able to keep up with the increases of premiums, and it will be cheaper and less headache to drop employees onto the government.

These are my thoughts, I haven't read the bill, but this is my current understanding and what I believe might happen.  Of course, I don't believe anyone really knows what will actually happen in practice.  I just don't believe it will be good for employers, employees, the country, or the taxpayer.

no really........ thats all you saw wow how about the same table for US:

Year	Unemployment rate (%)
2000	4.2
2001	4
2002	5
2003	5.8
2004	6
2005	5.5
2006	5.1
2007	4.8
2008	4.6
2009	7.2

Note 7.2 at the beginning of 2009

Don't most of the EURO countries have a consumption tax on top of their normal income taxes? France's top tax rate is 40% at just under 70k eruos or 93k usd. The national sales tax is almost 20%. That is just about on every purchase that you make. So not only are they taking 0.40 from every dollar you earn above 93,000, they are increasing the cost of goods 0.20 on every 1.00 you spend.

well considering it took what many claim is the worst depression/recession since the 1930's, where many are still panicing today  and all that did was get us about even with most of Europe's avg unemployment.  I'd say that proved her point

of course .. we could also look at their VAT tax rate compared to ours... oh wait .. we don't have one. they won't announce that until after the Nov elections

 yes... VAT coming in November... there is a think tank that has been figuring out how to sell it to the people.  the estimate are that for the US every 1% of national consumption tax, would equal apx 1 trillion revenue for the govt every ten years if food is included.. 900 billion if food is not

The arguments from Catepillar and others are a bit disingenuous.

Yes, they will be paying higher taxes due to the new bill.  However, the reason they'll be paying more is because they are LOSING A FEDERAL TAX SUBSIDY THEY WERE GIVEN A FEW YEARS AGO to encourage them to cover prescription medicine for their retirees.  The new bill eliminates the "donut hole" that retirees were having problems with, so offering this subsidy to Catepillar and others is no longer necessary.  Catepillar and others will lose their subsidy should they continue offering this now redundant benefit to retirees.  Should they choose to cut this redundant benefit they will not lose money.

No need for the government to continue subsidising Catepillar to provide prescription drugs to their retiress if the bill covers them elsewhere.  Catepillar retirees may not like it since it is a change, though one which does not necessarily affect them negatively.

Brian 

Brian

Yes and no they are losing tax dedutability of the subsidy but retaing the tax exempt subsidy.  The loss from Cat and Deere are one time off losses they are taking instead of spreading that loss over the years it will occur. http://online.wsj.com/article/SB10001424052748704094104575143723100528284.html?mod=WSJ_hp_editorsPicks.

There are many bad parts of this bill and many other reasons it will hurt business but I have to admit I cannot go with tri^2 on this one.  Otherwise Tri^2 I got your back man.

Looks like AT&T chimed in today with a reported $1 billion 1st quarter loss as a result.  In the article I read, it did stated that company cash flow would be hardest hit in the first year but as a result of the changes, companies will be pretty much sending a lot of people to use Medicare.  

And it looks like now the games begin:

http://blogs.wsj.com/washwire/2010/03/26/companies-charges-prompt-a-hearing/?KEYWORDS=henry+waxman

Earlier this week, Caterpillar Inc., Deere & Co., and AK Steel Holding Corp. announced their own hefty one-time charges.

Almost immediately, House Energy and Commerce Committee Chairman Henry Waxman of California and Rep. Bart Stupak of Michigan, chairman of the Oversight and Investigations panel, announced plans to hold an April 21 hearing on “claims by Caterpillar, Verizon, and Deere that provisions in the new health care reform law could adversely affect their company’s ability to provide health insurance to their employees. These assertions appear to conflict with independent analyses, which show that the new law will expand coverage and bring down costs.”

The committee wants the companies’ CEOs testify and provide evidence of the law’s projected impact.

Yes, a committee to investigate what private businesses do when they are following the law (SEC requires them to instantly restate figures based on future liabilities). Time to report to Uncle Sam and make sure what you're doing is what is desired. Just the beginning.

These companies received subsidies because they offered retirees prescription drug benefits instead of dumping them on medicare. It wasn't a $1 for $1 thing meaning that they didn't receive $1 in subsidies and pay out $1 in benefits. It was more like they took that $1 subsidy and added to it before it went to the retiree. The subsidy was something of an incentive for these companies to offer the benefit but it didn't pay for it in its entirety. The trade-off for tax payers was having less people on medicare, at a higher cost. Taking this hit to financial statements is just the beginning. Without the subsidies, these businesses will simply dump their retirees benefits entirely leaving them to be taken care of entirely by medicare, which means worse benefits and more cost to the taxpayers.

The Democrats shouldn't be so stupid, being frank, to think that this wouldn't be an affect of the law and if they didn't really understand the bill they passed, further shame on them. Committee's forcing businesses to testify in front of Congress when they are simply restating their profits as required by the law. More proof we're headed in the wrong direction.

It's only the big businesses that will get a lot of press, but these scenarios will play out in every business nationwide.


Edited by merlin2375 2010-03-26 9:10 PM

No, the US cannot continue to spend as much as we do. Period. Take away 'health care bill', that's irrelevant.  Tactically, that may be your individual position, but a gross generalization that misses the point.   

Whether it's earmarks, the debt from presidents past, bailouts, social security, the size of our military and cost for Afghanistan / Iraq, foreign aid, whatever, we're spending too much. That's manifested itself in a general malaise for the masses about our debt, plus the international malaise about the solvency of the US. The US had 3 governement bond offerings in the last 3 days, all of which were undersubscribed and rates moved from the initial offering to reflect the increased risk that IS the US. The world doesn't want to invest in the US....Debt is finally a national issue, as it should be.

Be clear...it's not health care that US businesses can't afford, it's the body of work of the government that has us here. And expect taxes to go up for the next decade to deal with what we know (existing debt) and what we don't know and is conjecture (the result of the Health Care legislation). 

ETA: Check out the transcript from PBS Newshour with Jim Lehrer tonight. Both parties' strategists said HC had to pass for Pelosi and Obama's legacies, and that's why it did. Privately, they're trying to figure out a series of amendments to 'temper' it (read: downsize) the effects of the bill. We're not done yet.  

This is the part I found truly ironic.  The first thing I thought was it seems the politicians have been hoist by their own petard.

Here is 20%:

J.W. Owens

2007

$

1,512,504

$

300,000

$

918,626

$

7,136,911

$

4,442,998

$

2,575,395

$

221,307

$

17,107,741

Great post.

The question remains: will the electorate honestly demand fiscal responsibility of candidates (of either party) or will they settle for sound-bytes.

Thanks for the heads up on PBS, I am reading the transcript now.

rkreuser - Great post.

In addition to the overall gov't expenditures, as a country we spend a dispropotional amount of GDP on health care. It is unsustainable. Something has to change. Will the new bill do that? Not sure, but we have to start making major structural changes to the system if we have any hope ensuring our future prosperty.

I sure hope the electorate understands that we have a few decades of higher taxes and less benefits to get ourselves out of our current predicment.

I'd like to see some numbers backing up your assertion that the rise in costs is WHOLLY due to the prescription subsidy.  In part, maybe.  Wholly no way.  I seriously doubt they are spending $100 million a year on prescription drugs.


Edited by TriRSquared 2010-03-27 9:20 AM

They aren't spending $100 mil on prescriptions drugs a year.  This is a one time off write down against earnings to account for current and future loss of the deductibility of the subsidy. From the WSJ:

http://online.wsj.com/article/SB10001424052748704100604575145981713658608.html?mod=WSJ_hps_LEFTWhatsNews

Since companies had created an asset based on the expectation they would be getting these deductions over the lives of their current and future retirees, they say they need to take a charge reflecting the fall in the asset's value.
Accounting rules say the charges, which affect what are called "deferred tax assets," must be taken in the quarter in which a tax-law change is enacted. The first quarter ends Wednesday. Companies wouldn't have to announce the charges before they actually report their first-quarter earnings over the next several weeks. However, if they viewed the charges as material, they might feel they needed to inform shareholders immediately.

How come I'm not allowed to "create an asset" based on my predicted tax returns for the whole rest of my life, and add that to my net worth?

If I read that correctly, Caterpillar is "losing" fake future-dollars.

Edited by ScudRunner 2010-03-27 1:01 PM

If you are of the corporations are evil mind then I would expect you would see it that way but this is something that is required for the SEC and originally set up by the government regulators.

Just to add, not only can businesses not afford it, neither can the states which are responsible for paying for a lot of this:

http://www.nytimes.com/2010/03/27/health/policy/27impact.html

It's got nothing to do with "evil."  It just strikes me as odd, and slightly stupid, that they are forced to claim the loss of $100M that they don't really have in the first place.  I mean, I know the whole system is essentially a shell game, but it is still a little mind-boggling every once in a while to see such stark examples of it.

ETA:  I have a hard time feeling bad for the corporation, or understanding how they can claim they're going to have to start firing people, when they lose some of their profit margin because they are no longer allowed to claim an income tax deduction on money they didn't actually spend (since it came from some place else). 

Also, in the case of AT&T and the $1B loss, that's one third of their profit for one fiscal quarter.  If it's all profit, and they lay some people off because their profit for one fiscal quarter is going to suffer one time and then their annual tax deduction will be a little bit smaller, that's just stupid.

Edited by ScudRunner 2010-03-27 4:08 PM

Gee, you would have thought that the Dems could have held these hearing BEFORE passing the bill. I wonder why they didnt?

Edited by Indiana_Geoff 2010-03-27 4:11 PM

Further, I would think that this aspect of the bill would actually be acceptable to the more fiscally conservative, as it closes a tax loophole by which the government was simply giving money away for no good reason.

<sigh......> They are not playing a shell game and if you had read the article and thought about it you would have seen that but let me try and explain it to you.  The subsidy and tax write off are to incentivise the companies to provide the prescription drug coverage for their retirees on a pension.  When the gov't passed Medicare part D they found it would be cheaper, for the gov't to pay companies a subsidy and allow the full tax write off than it would have been if their retirees enrolled in Medicare D.  Because they are publicly traded companies they are required by gov't regulation  to disclose and account for assets (the subsidy) and liabilities (lessened due to the tax write off) not just for today but into the future as well.  They do this so investors have access to the information and can make substantive judgments about purchasing stock in the companies (think Enron and World comm).  The government just changed the tax rules (liabilities) with the HC bill.  The companies are required, by the government, to reflect these liabilties changes for current and future liabilities already stated.  And, they are required to make those changes when the tax rules go into effect.  Do you see the pattern here? This means the companies get less tax write off and they may or may not drop prescription coverage for their retirees, we shall see.   If they do it means Medicare D will have to pick them up, costing the government more money.  As you will note, if you go back far enough, I already said I do not feel overly bad for the companies as they are losing only the write off of the subsidy not the subsidy itself (yet).  The timing however is rather lousy as we are in a weak recovery and these companies taking this hit now will likely cause some ripples in the economy that we really don't need now.  And if these companies drop their retirees drug coverage it will increase the cost projections for the HC bill. 
This is my understanding from the research I did so I would understand what was going on anyone with an MBA please feel free to correct me if I made any mistakes.

You are missing the point of the subsidy.  The spending by the government actually saved the government money and the tax write off was worth it to the companies even though they took on more expense, even with the subsidies.  It was a win/win for both parties as it kept all of these retirees off of the medicare rolls and it allowed the companies a tax break.  The government certainly wasn't giving the money away for "no good reason".  They were partnering with corporatkions in order to benefit both and reduce medicare cost to the taxpayer. 
The view of these companies is that the government has "dumped their partnership" and it will end up costing their balance sheet and thus the company by damaging their projected p/l and thus their stock prices. 
Whether you agree with that view is a matter of personal opinion.