Is the new health care law hurting big companies?

Cost of health care

Since the passage of the massive health care bill in the US that was signed in to law about two weeks ago, several very large companies have announced that it will cost them millions more. This is a very striking announcement because this health care bill was promoted to the public as a bill that will save money, not cost even more. Some of these companies’ figures were quite daunting, such as AT&T losing $1 billion, Boeing losing $150 million and 3M losing $90 million, just to name a few.

When I heard these announcements, I thought maybe this new health care law was a mistake and perhaps I was on the wrong side of thinking by agreeing with it. However, that didn’t seem right to me and I was very curious as to what part of the bill is actually costing these companies this extra money.

It turns out that since 2003, there was a tax-free subsidy given to companies for providing Medicare (public health care system for seniors). In addition to this subsidy, participating companies would also receive a tax deduction from the payments of the plan. In layman’s terms, it means that companies were basically given two tax incentives for the same action. This usually does not occur in tax law as it does not make much fiscal sense. The Obama administration says it is merely “closing a tax loophole”. Usually, governments downplay bad news, but in this case this assessment is accurate.

Also, these huge figures that companies have been reporting as new costs are a bit misleading. The rule is that companies must report these changes right away, however, this tax change will not come in to effect until 2013. However, the companies are required to adjust their accounting practices now, so basically they are estimating in to the future. One tax expert in Washington that works with large companies says that “it’s not (like) a company will write a check for $1 billion.” Therefore, it shouldn’t be looked at as a mistake over all just yet.

Only in time will we see whether or not this health care bill was a good choice or not. Until then, we can not jump to conclusions like many started to do when they heard the news about companies taking a financial hit from the passage of this bill. Don’t get me wrong, I am not some left-wing, anti-business hippie, that assessment could not be further from the truth. I hate it when companies have to incur new and unnecessary costs as a result of government decisions. All that does is lead to less investing in the business which means less innovation, less growth, lower pay for employees and other nasty outcomes. However, it is not correct to just look at the costs that companies will incur without looking at the gains or benefits from the same legislation.

This will likely take longer to determine, but only after all the new costs and gains are weighed we will be able to see whether or not this bill was good for companies or not. From the outset, I would expect that it will be beneficial for companies in the long term, even with this cost that they will have in the future. When it’s all said and done, I expect the financial gains to be greater than the costs.