Businesses already announcing hits as a result of the passage of ObamaCare

Posted by: ST on March 25, 2010 at 6:56 pm

Via the Wall Street Journal:

Democrats dragged themselves over the health-care finish line in part by repeating that voters would like the plan once it passed. Let’s see what they think when they learn their insurance costs will jump right away.

Even before President Obama signed the bill on Tuesday, Caterpillar said it would cost the company at least $100 million more in the first year alone. Medical device maker Medtronic warned that new taxes on its products could force it to lay off a thousand workers. Now Verizon joins the roll of businesses staring at adverse consequences.

In an email titled “President Obama Signs Health Care Legislation” sent to all employees Tuesday night, the telecom giant warned that “we expect that Verizon’s costs will increase in the short term.” While executive vice president for human resources Marc Reed wrote that “it is difficult at this point to gauge the precise impact of this legislation,” and that ObamaCare does reflect some of the company’s policy priorities, the message to workers was clear: Expect changes for the worse to your health benefits as the direct result of this bill, and maybe as soon as this year.

Mr. Reed specifically cited a change in the tax treatment of retiree health benefits. When Congress created the Medicare prescription drug benefit in 2003, it included a modest tax subsidy to encourage employers to keep drug plans for retirees, rather than dumping them on the government. The Employee Benefit Research Institute says this exclusion—equal to 28% of the cost of a drug plan—will run taxpayers $665 per person next year, while the same Medicare coverage would cost $1,209.

In a $5.4 billion revenue grab, Democrats decided that this $665 fillip should be subject to the ordinary corporate income tax of 35%. Most consulting firms and independent analysts say the higher costs will induce some companies to drop drug coverage, which could affect about five million retirees and 3,500 businesses. Verizon and other large corporations warned about this outcome.

U.S. accounting laws also require businesses to immediately restate their earnings in light of the higher tax burden on their long-term retiree health liabilities. This will have a big effect on their 2010 earnings.

CNBC reports John Deere will be taking an ObamaCare hit as well:

Farm equipment maker Deere expects after-tax expenses to rise by $150 million this year as a result of the health care reform law President Barack Obama signed this week.

Most of the higher expense will come in Deere’s [DE 60.20 -0.29 (-0.48%) ] second quarter, the company said on Thursday. The expense was not included in the company’s earlier 2010 forecast, which called for net income of about $1.3 billion.

Ed Morrissey breaks it down:

Now we have two American-based manufacturers that suddenly have a quarter of a billion dollars less capital than they did on Saturday. That’s just two companies. How much more capital will that grab from American businesses? We’ll start seeing it in their financial disclosures soon enough, and it will run into the tens of billions of dollars, perhaps more.

Some may say, Well, great! It pays for ObamaCare. It also takes the cash that would have fueled expansion, new job creation, and retirement income and sticks it into the hands of government bureaucrats. It will massively bleed the economy at a point in time where we desperately need the private sector to invest in itself and create new jobs and new opportunities.

Instead, those manufacturing jobs will simply go outside the US. If John Deere or Caterpillar doesn’t move them overseas, then foreign manufacturers will take up the slack instead. There would have been no good time for ObamaCare, but this is the absolutely worst time of all to impose these backbreaking taxes on the private sector. Expect unemployment to remain high, and perhaps even go higher, as a result of Congress’ work.

To describe this administration as mind-numbingly clueless is an understatement.

What will be another negative and dangerous side effect from these businesses seeing ballooning costs in their healthcare coverage? Again, back to the WSJ, which hints around at the consequences:

While the drug tax subsidy is for retirees, companies consider their benefit costs as a total package. The new bill might cause some to drop retiree coverage altogether. Others may be bound by labor contracts to retirees, but then they will find other ways to cut costs. This means raising costs or reducing coverage for other employees. So much for Mr. Obama’s claim that if you like your coverage, you can keep it—even at Fortune 500 companies.

In its employee note, Verizon also warned about the 40% tax on high-end health plans, though that won’t take effect until 2018. “Many of the plans that Verizon offers to employees and retirees are projected to have costs above the threshold in the legislation and will be subject to the 40 percent excise tax.” These costs will start to show up soon, and, as we repeatedly argued, the tax is unlikely to drive down costs. The tax burden will simply be spread to all workers—the result of the White House’s too-clever decision to tax insurers, rather than individuals.

Simply put, the cost of the employer-based healthcare coverage could be too expensive for many employees, so some will either drop or waive coverage from their employer and instead seek to be covered by – you guessed it – a “public option” healthcare plan, a “public option” that could eventually lead to single payer. And does this come as a shock to anyone? Nope, considering that our very own celebrity President said this three years ago:

“As I indicated before, I think that we’re going to have to have some system where people can buy into a larger pool. Right now their pool typically is the employer, but there are other ways of doing it. I would like to — I would hope that we could set up a system that allows those who can go through their employer to access a federal system or a state pool of some sort. But I don’t think we’re going to be able to eliminate employer coverage immediately. There’s going to be potentially some transition process. I can envision a decade out or 15 years out or 20 years out where we’ve got a much more portable system.”

Mission soon to be accomplished?

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17 Responses to “Businesses already announcing hits as a result of the passage of ObamaCare”

Comments

  1. ZippyTheWerewolf says:

    I’m enraged. One coworker stated to me, “There’s nothing to worry about, YOU are not paying for it. People making over $250 grand are paying for it.” Apparently people believe that others should share the wealth. So even if that WERE true, which it isn’t, it gives me no comfort in knowing that because of this assinine idiocy, big corporations will be taking their business elsewhere in order to make a profit.

    Forgive me Father for I am sinning right now and thinking bad thoughts.

  2. Drew says:

    I’m new to this blogsite, but let me introduce myself. I am a partner in a private equity firm that invests in small businesses: basically $50 – $250MM in revenues.

    I can report to you, unequivocally, that the health care legislation has small business owners shaking in their boots.

    They don’t know what the cost to employ will be. They don’t think they can invest in the new warehouse in the Northeast. They don’t think they can put on the new salesperson for the Mid-Atlantic states…….etc.

    This is a mess. And the Democrats just don’t seem to get it, or do they?

    Are the Dems stupid? Or do they just not care about the effect of policy on employment? What are their larger goals?

    Comments invited.

  3. Drew says:

    Zippy –

    Please do whatever you can to disuade your co-worker that the world is that simple.

    There is no free lunch. The notion that “other people” will pay for all of this is just juvenile. Your co-worker has a rude awakening coming.

  4. Patricia says:

    It seems to me that the long term plan is to force companies to drop insurance so that the cavalry can come riding in to save the day and everyone can be covered by them!

  5. Neo says:

    At this rate, the worst damage that terrorists could do to this country is stay out of DC and let the “ruling class” destroy the country themselves. Inaction by al Qaeda would be completely indistinguishable from action, a win-win for them.

    Never interrupt your enemy when he is making a mistake. Napoleon Bonaparte

  6. ZippyTheWerewolf says:

    @ Drew: There is no reasoning with those who can’t see beyond their ‘what should be’ while holding their hand out.

    The liberal cousins I deal with don’t have children so what they understand is not what I understand. Their perception of the truth is so completely distorted that there are no words to convey how misguided they are. All they see are ‘Those awful Republicans who don’t want to give all those poor children healthcare’ (as quoted to me) and then ‘period! end of discussion’ which I imagine makes it so in the world of make believe.

    I want world peace and for everyone to have everything they need. But then I awaken from my dream and realize that is just not reality.

  7. Kate says:

    Welcome Drew…and it’s obvious that what the current administration wants is to create havoc…at the expense of the economy and hard working people….in order to install their brand of progressive policies that intend to dominant our lives.

    As soon as they can say, “See, I told you that we need universal care because all those companies can’t afford health insurance!” BINGO! We got a government plan ready to go. That’s why it will take four years to implement. They foresee a four year time line to destruction of the medical insurance industry…how does that work for Wall Street? (this is all my humble opinion, of course.)

  8. Antimedia says:

    To describe this administration as mind-numbingly clueless is an understatement.

    I disagree. I think this administration knows exactly what the consequences of this bill will be, and they are looking forward to it. Their goal is to turn America into a socialist state. By depressing the economy and destroying businesses they can get the masses to clamor for more help from the government. Once the process is done, they will “own” America, and freedom will be gone.

    They used to teach this in history classes in America, but we let the socialists become our teachers. At that point the death of America was a fait accompli and only time was required for it to bear fruit.

  9. ZippyTheWerewolf says:

    Welcome Drew!

    What these idiots have done is ram an unthought out process down our throats, choking the life out of all Americans and snuffing out the future of our children and grandchildren.

    Forgive me for wishing bad things on these people, but hopefully they will get what they’re due.

  10. mprins says:

    I’m work as a business consultant to several middle-market businesses. I was recently with one with revenues in the 50 million area that is prepared to take a 1.5 million increase in expense due to Obamacare. This will result in a reduction in headcount which is the only variable expense this employer has managed this unanticipated increase in expense. This bill will be very destructive to employment. The full impact is yet to be felt.

  11. Mwalimu Daudi says:

    Democrats threaten companies hit by ObamaCare.

    The beatings will continue until attitudes improve.

  12. Anny says:

    I guess the huge news for entrepreneurs is how to keep their businesses below the 50 people threshold. I tend to think that will decrease employment as well.

    The more I listen to Obama, the more I think someone had to have been paid to take his law school exams, because he just does not come off as being intelligent by any stretch of the imagination.

    And now Obama crony Waxman is summoning these large businesses to Washington for hearings? What the heck is wrong with these people?

  13. Carlos says:

    Now that the initial impact on business is coming to fruition (lay-offs, cuts in insurance, etc.) Waxbrain is steaming mad at those who have the audacity to blame the jackass’s wonderful solution. What a maroon!

    He can’t understand that if people and businesses are taxed for four years and don’t receive ANY benefit from those taxes, they have to cut expenses to make up for lost revenue (via taxes).

    And more stories are trickling in about people who have assumed that now that Duh-1 has signed the legislation, they are eligible for all those wonderful free (!!!???) health care benefits.

    I hope somehow the execs that have to show up at Waxbrain’s dog and pony show explain it so that even he will understand it!