Shawn Tully at Fortune:
The great mystery surrounding the historic health care bill is how the corporations that provide coverage for most Americans — coverage they know and prize — will react to the new law’s radically different regime of subsidies, penalties, and taxes. Now, we’re getting a remarkable inside look at the options AT&T, Deere, and other big companies are weighing to deal with the new legislation.
Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.
That would dismantle the employer-based system that has reigned since World War II. It would also seem to contradict President Obama’s statements that Americans who like their current plans could keep them. And as we’ll see, it would hugely magnify the projected costs for the bill, which controls deficits only by assuming that America’s employers would remain the backbone of the nation’s health care system.
Hence, health-care reform risks becoming a victim of unintended consequences. Amazingly, the corporate documents that prove this point became public because of a different set of unintended consequences: they told a story far different than the one the politicians who demanded them expected.
John Byrne at Raw Story:
Democrats canceled hearings after learning companies’ plans would make health insurance bill look bad
House Democrats abruptly canceled hearings into major US companies’ responses to their massive health care overhaul after receiving documents revealing that companies were considering dropping all of their employees’ health benefits in response to the healthcare bill.
Scott Johnson at Powerline:
The documents in issue had been subpoenaed by Waxman and Stupak in response to the chargeoffs taken by these companies as a result of the enactment of Obamacare. Waxman and Stupak had planned to produce a bit of political theater, scheduling a hearing on the chargeoffs at which the companies’ executives were to testify.
The production was canceled when Waxman and Stupak were apprised of the obvious consequences of the bill they and their Democratic buddies had just voted for. Waxman and Stupak had been oblivious to them when they voted on the bill. We noted a few weeks ago that Robert Pear did a good job covering this story for the New York Times.
I would not have wanted to be one of the majority committee staffers who had to advise Waxman that the elimination of a big corporate tax deduction results in a big corporate tax expense that has to be recognized under applicable accounting standards. It can’t have been pleasant duty. Indeed, majority committee staffers sugarcoated the bitter pill.
It’s not just the calculus of mandates and penalties that has employers considering the option of dumping health care and paying more in salaries instead. The mandate to keep “children” on plans until the age of 26 has employers seeing a steep cost curve. For Caterpillar alone, the 26-year-old mandate will cost over $20 million a year. Under those conditions, the penalties look pretty good. Add on the “Cadillac tax” on some health plans and the expected jump in medical costs from providers dealing with their own set of mandates, and health insurance looks like a very bad risk.
What will it cost the government to provide subsidies for tens of millions of Americans who used to get health insurance through their employers? No one really knows for sure, but Fortune takes a stab at it:
What does it mean for health care reform if the employer-sponsored regime collapses? By Fortune’s reckoning, each person who’s dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO. Of course, as we’ve seen throughout the health care reform process, it’s impossible to know for certain what the unintended consequences of these actions will be.
But some of us predicted that the numbers used by Democrats pushing ObamaCare bore little connection to reality — and that it would incentivize employers to destroy the net of employer-based health insurance. It looks like that day is fast approaching, and that’s no myth. It’s a reality that Henry Waxman tried hard to hide from the American public.
This is one reason I was so surprised when PPACA advocates proved so sanguine about the prospect of firms dropping coverage. All this would mean, many argued, is that we’d have something more like the Wyden-Bennett model. And that might be true. But the long-term budgetary impact of the legislation was central to the debate. The political case for PPACA rested on the notion — the dubious notion, in the view of many critics — that the revenue-raising measures were enough to pay for the coverage expansion, and indeed that the legislation would meaningfully improve the broader fiscal picture. We now have even more reason to believe that this happy outcome will not come to pass.
Mary Katherine Ham at The Weekly Standard:
But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they’ll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.
As if the federal government didn’t already make being self-employed hard enough. So, how does the new law make this ridiculousness necessary?
The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations…Eliminating the goods exemption could launch an avalanche of paperwork, he says Bill Rys, tax counsel for the National Federation of Independent Business: “If you cater a lunch for other businesses every Wednesday, say, that’s a lot of information to keep track of throughout the year.”
Why’d they go and do that? You know why:
The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.
A Democratic aide goes on to defend the move, in this article, lauding the clever way the government is extracting more money from small businesses without actually raising their taxes.
Yuval Levin at The Corner:
Consider two items that have emerged in just the past two days. First, it turns out that several major corporations are drawing up plans to end their employee health benefits once Obamacare gets up and running. They’ve done the math and figured out that the penalty they would have to pay for dropping their workers would be much lower than the costs of continuing to insure them, and now there will be a new taxpayer-subsidized option for those workers to turn to in state exchanges, so why not cut them off? Of course, as Fortune’s Shawn Tully points out, that will mean far higher costs to the public than those projected by the Congressional Budget Office and far more disruption and instability than voters were promised: Remember “if you like your plan you can keep it”? Well, not if your employer is given a strong incentive to end it.
It turns out the many critics who argued that exactly this would happen weren’t just pumping out fog after all. And in an extra bit of irony, the corporate memos outlining all this became public because Henry Waxman ordered the companies to turn over their internal health-care memos in preparation for a hearing at which he was going to berate them for reporting the added costs that Obamacare would impose on them. Once his staff actually saw the memos, the hearing was cancelled.
Second, it turns out that the massive bill contained a hidden change in the tax law that will require companies to submit IRS 1099 forms not only for contract workers (as is the case now) but also for any individual or company from which they purchase more than $600 in goods or services in a year. That’s millions of new forms to file and send to vendors and the IRS, and lots of work and expense gathering names and taxpayer ID numbers from every vendor and store a business deals with.
As the fog clears, the case for repeal gets stronger and stronger.
UPDATE: Ross Douthat