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Double-Dipping Explained

There has been a lot discussion about reports that some businesses are expecting some additional costs from health reform. Today a New York Times editorial elaborates on the issue.

There has been a lot discussion about reports that some businesses are expecting some additional costs from health reform.  The problem doesn’t lie with corporate accounting, it lies with those who have politicized that accounting, treating first quarter earnings from about a dozen companies as a way to judge the entire impact of health reform on America’s business.

The markets didn’t make that mistake. And today, a New York Times editorial elaborates on why the critics have it wrong.

As we've explained, the 2003 Medicare prescription drug bill included not only a subsidy to help companies pay for retiree prescription drug coverage, but also allowed them to deduct that subsidy from their taxes as if it was their own spending. Thus the headline of the editorial: "We Call That Double-Dipping." After health reform was signed, which kept the subsidy in tact but simply eliminated the ability to deduct the subsidy as well, affected companies posted earnings figures indicating they had taken big losses as a result of this change -- but as the editorial says:

Those look like staggering amounts until one understands that they don’t require any immediate cash payments and that the added taxes will be paid out slowly — over perhaps 30, 40 or more years, depending on a company’s retiree plan.

Wall Street certainly gave a collective yawn. Stock prices for the companies that made announcements barely budged (some went up), and analysts urged investors not to overreact because the accounting change would have a negligible impact on these companies’ valuation, or market capitalization.

As for the question of how this change will affect seniors, the editorial closes on this note:

The remaining tax subsidy is substantial and many companies and their workers value the retiree drug benefit, so defections may be small. If some retirees do lose their company drug benefits, they can buy government-subsidized coverage in Medicare that may be just or almost as good and will be getting better as health care reform progresses. Willing employers could also help subsidize their retirees’ drug coverage in Medicare.

That’s the least they should do in return for the generous tax benefits they have been receiving.

Dan Pfeiffer is White House Communications Director