The Glade 4.0

So the wave of corporate writedowns—led by AT&T's $1 billion—isn't caused by ObamaCare after all. The White House claims CEOs are reducing the value of their companies and returns for shareholders merely out of political pique.

A White House staffer told the American Spectator that "These are Republican CEOs who are trying to embarrass the President and Democrats in general. Where do you hear about this stuff? The Wall Street Journal editorial page and conservative Web sites. No one else picked up on this but you guys. It's BS." (We called the White House for elaboration but got no response.)

In other words, CEOs who must abide by U.S. accounting laws under pain of SEC sanction, and who warned about such writedowns for months, are merely trying to ruin President Obama's moment of glory. Sure.

Presumably the White House is familiar with the Financial Standard Accounting Board's 1990 statement No. 106, which requires businesses to immediately restate their earnings in light of their expected future retiree health liabilities. AT&T, Deere & Co., AK Steel, Prudential and Caterpillar, among others, are simply reporting the corporate costs of the Democratic decision to raise taxes on retiree drug benefits to finance ObamaCare.

When the Medicare prescription drug plan was debated in 2003, many feared that companies already offering such coverage would cash out and dump the costs on government. So Congress created a modest subsidy, equal to 28% of the cost of these plans for seniors who would otherwise enroll in Medicare. This subsidy is tax-free, and companies used to be allowed to deduct the full cost of the benefit from their corporate income taxes (beyond the 72% employer portion).

Democrats chose to eliminate the full exclusion and said they were closing a loophole. But whatever it's called, eliminating it "will be highly destabilizing for retirees who rely upon employer sponsored drug coverage" and "will impose a dramatic and immediate impact on company financial statements."

That's how the AFL-CIO put it in a December 10 letter. The Communications Workers of America and the International Brotherhood of Electrical Workers—also known as the AT&T and Verizon workforce—were opposed too. So much for White House claims that reporting these facts is partisan.

As for whether this change is better tax policy, the new health-care bill creates a similar $5 billion fund that will subsidize health costs for early retirees between the ages of 55 and 64. These payments won't be subject to taxation, and companies will likely be able to deduct the full cost of such coverage. (The language is vague and some experts disagree.) The Democrats now feigning tax outrage—but who are really outraged by political appearances—didn't think twice about writing the same loophole back into the tax code. This new reinsurance program was a priority of the United Auto Workers.

The deeper concern—apart from imposing senseless business losses in a still-uncertain economy—is that companies will start terminating private retiree coverage, which in turn will boost government costs. The Employee Benefit Research Institute calculates that the 28% subsidy on average will run taxpayers $665 in 2011 and that the tax dispensation is worth $233. The same plan in Medicare costs $1,209.

Given that Congress has already committed the original sin of creating a drug entitlement that crowds out private coverage, $233 in corporate tax breaks to avoid spending $1,209 seems like a deal. If one out of four retirees is now moved into Medicare, the public fisc will take on huge new liabilities.

Meanwhile, Democrats have responded to these writedowns not by rethinking their policy blunder but by hauling the CEOs before Congress on April 21 for an intimidation session. The letter demanding their attendance from House barons Henry Waxman and Bart Stupak declared that "The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern."

Perhaps Mr. Waxman should move his hearing to the Syracuse Carrier Dome. The Towers Watson consulting firm estimates that the total writeoffs will be as much as $14 billion, and the 3,500 businesses that offer retiree drug benefits are by law required to report and expense their losses this quarter or next. But 'twas a famous victory, ObamaCare.

A White House staffer told the American Spectator that "These are Republican CEOs who are trying to embarrass the President and Democrats in general. Where do you hear about this stuff? The Wall Street Journal editorial page and conservative Web sites. No one else picked up on this but you guys. It's BS." (We called the White House for elaboration but got no response.)

That damn "vast right-wing conspiracy" again!

19 Yet she became more and more promiscuous as she recalled the days of her youth, when she was a prostitute in Egypt. 20 There she lusted after her lovers, whose genitals were like those of donkeys and whose emission was like that of horses.

In all fairness, it is pretty vast when even the laws of economics are in on it.

President Obama began his campaign to reform the American health-care system focused on three goals: protecting Americans' choice of doctors and health plans, assuring quality and affordable health care for all Americans, and reducing costs for families and businesses.

The new comprehensive health-care legislation meets these goals, and will significantly benefit American businesses by slowing and eventually reversing the tide of crippling premium increases washing over our nation's employers.

These cost savings are real. They will grow over time. And they will make U.S. businesses more competitive.

First, by drastically cutting the number of uninsured, this law reduces the hidden tax of about $1,000 for family coverage that those with insurance pay to cover the cost of the uninsured who rely on emergency rooms for care. Second, the law invests $5 billion in a new reinsurance program for early retirees starting this year. For employers paying for their retirees between ages 55-64, this provision will directly reduce family premiums by as much as $1,200.

Third, the new law contains numerous reforms that a 2009 study by the Business Roundtable—an association of CEOs of leading U.S. companies—says will help slow the growth rate of health costs over time.

It places a fee on insurance companies' most expensive plans that independent experts agree will put downward pressure on the long-term growth of health costs.

It empowers an Independent Payment Advisory Board to keep Medicare cost growth in check and promote payment and health delivery system reforms. And it realigns incentives to reward medical providers for the value, not the volume, of their care.

Based on the midrange estimates of the nonpartisan Congressional Budget Office (CBO), the present value benefit of the premium reductions from these reforms over the next three decades is in excess of $200 billion.

Add these system-wide reforms with measures like the $40 billion in tax credits that will be available to about four million small businesses over the next decade to help cover the cost of employee health coverage, and what you have is a law that is unquestionably pro-business and pro-jobs.

However, in recent days, critics have seized on a minor provision in the law to suggest it's already increasing health-care costs for businesses. A fair reading of this provision suggests that its actual impact is quite modest, and far outweighed by the benefits for large businesses outlined above.

Let's explain how this started. When the Medicare Part D prescription drug bill passed in 2003, businesses were given a double subsidy to help cover the cost of providing prescription drug coverage to their retirees. The government picked up 28% of the cost of their retiree prescription drug plans, and businesses were allowed to both exclude that 28% subsidy from their income and at the same time deduct that subsidy from their income for tax purposes.

In 2013, that changes. Under the new law, businesses will still get the same 28% subsidy, and it will still be tax free. They just don't get to deduct the subsidy.

Seems reasonable, right? This is how virtually every other federal subsidy for businesses and individuals is treated by the IRS. Indeed, Donald Marron, acting CBO director for President George W. Bush, put it this way: "[A]s the Joint Committee on Taxation recently noted, that treatment is highly unusual. In my view, it's right that the recent health legislation closed that loophole."

This change has garnered recent headlines because, to comply with accounting laws, companies affected by the provision have taken a one-time charge reflecting the loss of future tax deductions over the decades-long duration of their retiree health-care plans. Critics have seized on this accounting adjustment to suggest these costs—as much as $1 billion in one company's case—are going to place immediate and substantial cost burdens on America's businesses.

This is disingenuous.

The actual cash flow impact of these provisions begins in 2013, and is only a tiny fraction of the accounting charge-offs.

This newspaper reported last Friday that while one company calculated a $100 million hit to its first-quarter earnings, its actual cost after taxes and subsidies, beginning in 2013, was closer to $7 million a year, or less than 1% of its profits last year.

Credit Suisse's response to the tax controversy was: "don't overreact to the hit on earnings." Morgan Stanley referred to it as "noise" that would have "no impact whatsoever" on their view of this earnings cycle. And UBS projected that the impact in virtually all cases represented less than 1% of market capitalization for affected companies.

When you look past the hype and the overheated rhetoric, the benefits of the health reforms for America's businesses large and small far outweigh the impact of this small tax provision.

And while critics have rushed to highlight this small accounting measure, they conveniently leave out the one fact on which every serious health-care analyst agrees: The status quo was completely unsustainable for American businesses.

The Business Roundtable study said that if current cost trends continued through 2019, the total cost of employer and employee premiums and out-of-pocket expenses would be 166% higher than it is today.

That would either force companies to decrease or eliminate employee health-insurance benefits or subject them to back-breaking costs that would make them less competitive in the global marketplace.

The bill President Obama signed into law last week helps avoid each of these equally unappealing options.

I understand that in these difficult economic times, the potential for any additional expense is not welcomed by American businesses. But in the long run, the health insurance reform law promises to cut health-care costs for U.S. businesses, not expand them.

That's good for them. That's good for their employees. That's good for America.

Mr. Locke is the commerce secretary of the United States.

Facism is not a school of thought, it is a racial slur.

With the encouragement of Gov. Deval L. Patrick, Massachusetts insurance regulators took the extraordinary step Thursday of rejecting nearly 9 out of 10 rate increases requested by the state’s health insurers.

Mr. Patrick, a Democrat who is running for re-election, most likely against a former health insurance executive, said the move was needed because “small businesses and working families can’t wait any longer” for relief. The requested premium increases, which were for individual and small-group plans, ranged from 7 percent to 34 percent.

Small businesses cheered the state’s intervention, but health insurers predicted disruption in the marketplace, including voided contracts and legal challenges. They said Mr. Patrick’s main target seemed to be his leading Republican challenger, Charles D. Baker Jr., the former chief executive of Harvard Pilgrim Health Care.

Mr. Patrick’s move, which Mr. Baker dismissed as “an election-year gimmick,” reflects the political advantage that many candidates perceive in attacking health insurance rates this year. Some analysts considered it a turning point in the health care debate in Washington when the Obama administration highlighted double-digit increases announced by Anthem Blue Cross of California.

“Right now, premium increases have never been more political,” said Sandy Praeger, the insurance commissioner in Kansas and past president of the National Association of Insurance Commissioners. “If there is any way to justify not granting the increase, commissioners are looking for them.”

President Obama proposed in February that the federal government be given new powers to rule on whether premium increases are justified and to force insurers to reduce them.

In the end, Congress did not go that far. The new law requires that the administration review premium increases annually, beginning this year. When rates are considered unreasonable, insurers will have to justify them publicly. But the law does not allow the federal government to control prices, leaving that authority to the states.

States vary widely in regulation of insurance pricing. In California, for instance, the insurance commissioner, Steven Poizner, is reviewing Anthem’s proposed increases of up to 39 percent. But he can deny them only if he finds that the company is not spending at least 70 percent of premiums on health claims, as required by state regulations.

In Massachusetts, the power to disapprove rates has been vested in the insurance commissioner since 1977. That authority had never been used before Thursday, said Insurance Commissioner Joseph G. Murphy, who was appointed by Mr. Patrick.

In February, at Mr. Patrick’s direction, the state’s Insurance Division required health insurers to give the state 30 days’ notice to review proposed rate increases scheduled to take effect April 1. Previously, insurers simply filed their increases when the new rates started, and they were rubber-stamped by regulators.

But on Thursday, Mr. Murphy denied 235 of the 274 proposed increases. He said he disapproved requests when companies significantly exceeded the region’s medical inflation rate of 5.1 percent, failed to justify why varying rates were paid to different hospitals, and did not forcefully negotiate prices with providers.

Insurers have a right to appeal, and rates from the previous year stay in effect in the meantime. Consumers will receive refunds or credits if they have already started paying higher rates.

Mr. Murphy said his department estimated that the denials would save consumers — and thus cost insurers — $6 million to $8 million a month.

Lora M. Pellegrini, the president of the Massachusetts Association of Health Plans, called the denials “a very reckless act” and warned that insurers on thin margins might have trouble paying claims. Three of the state’s four largest health insurers reported operating losses last year.

Ms. Pellegrini said the timing of the announcement suggested that it was “largely political.” She said Mr. Patrick should focus attention on the primary cause of health care inflation, which she identified as rising medical costs.

A Boston University study recently found that hospital costs per Massachusetts resident were 55 percent higher than the national average. An investigation this year by the state attorney general concluded that the pricing leverage exerted by academic medical centers played a major role.

“Arbitrary government price controls will not solve the problem and will likely cause unintended harmful consequences,” the state’s largest insurer, Blue Cross Blue Shield of Massachusetts, said in a statement.

Ms. Pellegrini warned that government rate regulation would splinter the coalition of stakeholders who have supported the state’s pioneering universal coverage law.

“This feels like an unraveling of all that good work,” she said.

But Barbara B. Anthony, the state under secretary for consumer affairs, who oversees the Insurance Division, said the state had studied whether the rate denials would pose a threat to solvency.

“During times like this,” Ms. Anthony said, “it’s unfortunate, but reactions tend to be hyperbolic and exaggerated.”

Mr. Patrick has said the price controls are needed as a bridge until the legislature can act on his administration’s proposal to restructure the way doctors and hospitals are paid. The governor and Democratic lawmakers are working to construct a system that would pay health care providers collectively to keep patients healthy while eliminating incentives that encourage unneeded treatment.

Mr. Patrick has also proposed legislation that would give the state new authority to reject unreasonable hospital and physician prices, just as it did Thursday with insurance premiums.

Three of the state’s four largest health insurers reported operating losses last year.

In comic strips the person on the left always speaks first. - George Carlin

In the interest of presenting other sides to the topic, a letter to the editor in WSJ from Gary Locke, Secretary of Commerce:



It is an interesting clarification of some of the points, though I disagree with his position that this bill will save money.

In the interest of presenting other sides to the topic, a letter to the editor in WSJ from Gary Locke, Secretary of Commerce:

Facism is not a school of thought, it is a racial slur.