A new congressional staff report has defused a standoff between Democrats and large corporations over losses the firms anticipate because of the new health overhaul law.
Rep. Henry Waxman, D-Calif., the chairman of the House Energy and Commerce Committee, let his fellow committee members know Wednesday in a memo that an April 21 hearing was off, quelling a dispute that began just a day after President Barack Obama signed the sweeping health law on March 23.
On March 24, the heavy equipment manufacturer Caterpillar announced it would lose $100 million because the health law stripped it of a tax deduction for federal subsidies for retiree drug expenses. During the next few days, announcements of similar corporate charges trickled in from other firms, including a $1 billion charge from AT&T.
These charges quickly became a highly charged political issue with conservatives and bloggers pointing to the announcements as indications of the new law's high costs. In a March 25 editorial, the Wall Street Journal wrote, "Caterpillar said it would cost the company at least $100 million more in the first year alone."
By the end of that week, Waxman began a congressional investigation and sent letters to Caterpillar and the other firms demanding an explanation for their claims of losses that he said "conflict with independent analyses."
The preliminary results of that congressional probe came in Wednesday. The findings in short: The firms followed proper accounting rules.
Although the companies reported the charges immediately in order to comply with accounting requirements, the investigators noted, the massive losses they predicted would take place over "decades," not the single year the Wall Street Journal described. The report said, "actual impact on annual company cash flows will be only a fraction of the amount of the noncash charges reported to the SEC."
For instance, AT&T's $1 billion charge would amount to about $44 million a year, while Caterpillar's would total between $8 million and $10 million annually. Investment advisers at Credit Suisse and UBS said these changes would have minimal effects on the firms, the report says.
Read the full staff report here.
The report also points out that the provision that prompted the charges is only one of many affecting large employers, and that others are expected to be more helpful. The charge-incurring provision will mean government subsidies are no longer tax-deductible for companies, even though the subsidies themselves will remain in place.
But, other provisions in the law -- unrelated to this issue of the retiree drug expenses -- could shift more healthy workers into large-group insurance plans, such as those offered by the big firms that suffered charges, and result in an up to 3 percent reduction in average premium costs for insuring employees, according to a Congressional Budget Office report. The firms acknowledged as much.
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