The House Energy & Commerce Committee, headed by powerful Democrat Henry Waxman (D-Calif.), cancelled hearings set for April 21 in which Congress planned to grill chief executives as to why they were taking profit charges for health reform.
But the hearing would have been an embarrassment for these officials.
Companies are not just being strong-armed for simply following accounting rules set down by the government in standard ASC 740.
Elected officials who support health reform also have been pressuring companies to report potentially false profit statements showing how health reform's cost savings will help their bottom line, cost savings that have yet to materialize and have yet to be proven.
Such accounting could push these companies beyond the accounting thresholds set down in the law.
Why Was the Hearing ReallyDelayed?
Elected officials have been misrepresenting and using a misread of a Business Roundtable study, done with Hewitt Associates, to support their argument that the new health reform bill would create cost-savings.
But the study is not based on the new bill.
Instead, it cites free market and other changes not in the reform bill as creating cost savings, such as health savings accounts, malpractice reform, and publishing Medicare claims data so consumers can comparison shop.
The study says “medical liability reforms should be included, which are now largely missing from the leading health care reform proposals.”
Furthermore, the study, published in November 2009, said the current proposals were “missing some ingredients” that “can bend the future [cost] trend significantly and permanently.”
The study advocates a “more normal market dynamic for health-care costs,” and says “true market reform can yield even greater savings” which “could lead to growth rates akin to the growth of the overall economy.”
The study also says cost savings promised in the bill to pay for reform “will not bend the cost curve as much as is needed to approximate the overall growth rate in the economy" and "could easily become sabotaged by the same risks that have plagued cost-control initiatives for decades," including future legislative changes.
The study adds that cost savings that kick in down the road can easily be “delayed,” which would put health care reform “at risk for increasing federal deficits and failing to curb costs for employers and employees.”
The Business Roundtable is an association of chief executives from leading companies with $5 trillion in sales and 10 million workers. Hewitt is a global consultancy. To read the study, click here).
Gary Locke, Commerce Secretary, has said it was “irresponsible” and “premature” for companies to disclose write-downs from health reform changes, despite the fact that accounting and disclosure rules require such shareholder notification.
In a Wall Street Journaleditorial, Mr. Locke said companies should instead report how the new reform bill would provide cost savings.
Rep. Waxman also chastised companies for having the audacity to publish these “assertions,” meaning, the write-downs, and in his letter to the companies co-signed by Rep. Bart Stupak (D-Mich.), demanded internal accounting analyses and e-mail messages between senior executives discussing health reform's impact, in an attempt to shame companies into toeing the line. (To read a sample of their letter, click here; for more on the hearing and to read more of their letters, click here).
Deere & Co. (DE), Caterpillar (CAT), Honeywell International (HON), AT&T (T), Verizon (VZ) and Boeing (BA) all have reported charges (for more detail on the accounting rule behind the write-downs, see below).
Misread of the Business Roundtable Study
“The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern,” Waxman and Stupak, both Democrats, wrote in the letters.
The congressmen added that these assertions “also appear to conflict with independent analyses, including a finding by "the Business Roundtable" which “asserted in November 2009 that health care reform could reduce predicted health insurance cost trends for businesses by more than $3,000 per employee over the next ten years.”
However, the study was not premised on the recently enacted health reform bill.
What the Study Really Says
The study shows certain health reforms, including many not in the new bill, would save companies $3,000 on average per worker over a 10-year period, cutting the average cost per employee down to around $25,400 from about $28,500.
It says that cost savings would result if Congress adopted certain reforms, including free market changes such as health savings accounts and malpractice reform, as well as expanded use of health reimbursement arrangements (for more detail, see below).
The study also says reform is in danger of failing to stop rising health care costs due to:
Future legislative reversals of potential cost savings provisions (promises made to pay for the bill);
Failure to curtail costs from defensive medicine and malpractice insurance;
“Changes to flexible spending arrangements or actions that discourage consumer-engaged decision making”;
“Cost-shifting to the private sector from reductions in federal reimbursements to providers and from a public plan option if included.”
The study says Congress should:
“Give individuals greater accountability for discretionary health care spending decisions, including health reimbursement arrangements and health savings accounts;
“Make information on the cost and quality of care from physicians and hospitals readily available to patients so they can make more informed decisions as health care consumers.”
Health Care Writedowns
Accounting rules say companies must book on their balance sheets expected future tax breaks, such as the one on drugs for retirees, as a “deferred tax asset.”
Companies were providing these benefits, which helps the government avoid having to pay for those costs through Medicare.
As the value of this asset changes, for instance, as the health reform tax break is going away, companies then book the difference as a gain or a loss. Medicare Part D prescription drug changes enacted in 2003 gave businesses a sweet subsidy for this retiree drug coverage.
Taxpayers covered 28% of the cost of these plans, businesses also got to exclude that 28% subsidy from their reported income and at the same time they got to deduct that subsidy.
In 2013, companies still get the 28% subsidy, but they can't deduct the subsidy. It's expected that companies will stop such coverage, and retirees will turn to Medicare instead.