Friday, March 26, 2010

Smells more like a rotten subsidy

Obamacare rears it's nasty head already!
"Taxing the subsidy means that more companies will eliminate or reduce the coverage, and more retires will shift to Medicare Part D, which will create more costs for both the government and the retirees." Excerpt from letter sent by 10 companies to congressional leaders" (source)
Gosh darn it! They said this would happen, stupid Obamacare-tax and spend liberal-take away my freedom.....wait....subsidy? Isn't a subsidy getting know like subsidizing housing or education?

So as I understand it, when we subsidize something we take from the massive pot we call revenue. We take money from this pot in the hopes of reaping a benefit, like reducing homelessness, hunger, poorly educated citizens, or even providing medical/health care for low income folks.

That sounds a lot like a handout. "Welfare!" you say, why should we taxpayers pay for things that should be the responsibility of the person?, it' an incentive, see, we do it to get a benefit. Welfare or Incentive, different feel but same result.

Which is why this story caught my eye, you see (no pun intended) they are taking away the handout - the subsidy, the corporate welfare, the incentive.....and in so doing, those that also benefited - in this case retirees - will lose out. When the teat drys up the piglets go a' squealin'!

So lets look at this subsidy they are "losing" a bit closer.....
Jan 8 2004 (From the Wall Street Journal - six years ago)

The new federal program calls for employers to be reimbursed for 28% of the cost for prescriptions of more than $250 per retiree, up to an annual subsidy of $1,330 per retiree, beginning in 2006.

Thanks to a little-noticed provision in the new law, the government will calculate the subsidy based on both what the employer spends for prescription drugs and what the retiree spends. So if an employer and a retiree each pay $1,000 toward the retiree's medical costs, the employer's subsidy is calculated on the full $2,000, bringing the company a total subsidy of $490, rather than the $210 that it would get if it received a subsidy only on its share.

As a result, when combined with tax and accounting rules, the program allows employers in some cases to use the subsidy to erase the entire cost of prescription drugs for retirees, or even turn a profit from a drug plan. For instance, if a Medicare-eligible retiree's prescription costs are $2,550, and his former employer pays $1,000 of it, under long-standing tax rules, the employer can deduct its full $1,000 for tax purposes, meaning the after-tax cost to the company is $650 at a 35% corporate tax rate.

Meanwhile, the company doesn't pay taxes on the subsidy it receives, thanks to another provision of the new Medicare law. So in this example, the employer would receive a subsidy of $644, based on the full amount paid by both employer and retiree, reducing the company's cost for the retiree to $6 for the year.
I think a pretty good argument can be made as to who the real scoundrels are and that what is now taking place is a prudent fiscally responsible correction of a sweetheart deal. Or we can blame Obamacare for taking away retirees prescription payments.

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