Capitalistic Spirit Will Make Us Stronger Over the Long Run

Over the course of the last week, several large companies have disclosed that they will be taking a one time reduction in earnings as a result of the health care reform law. The core issue driving the one time reduction is related to federal subsidies received by these corporations to assist with funding the prescription drug benefit for their retirees under Medicare Part D. These subsidies have been tax deductible since the inception of Medicare Part D in 2003 and the new law eliminates this tax deduction. It is estimated that, as a result of this provision alone, American corporations will experience reductions in earnings totaling somewhere in the range of $14 to $15 billion.

As one would expect with such a sensitive and volatile topic, the reaction to these announcements has been nothing less than dramatic. On one hand, critics of reform are basically saying “see, we told you so” meaning that the new reform law would adversely affect American business and create additional burdens on corporate America—ultimately resulting in additional lost jobs and further setbacks to the economy.

On the other hand, those in favor of the new law have cited that these corporations are acting prematurely and irresponsibly in reporting this information (even though, by law, they are required to). It is also being said that over the long run, the new law will actually save corporations costs by reducing the overall cost of health care into the future.

The issue has become so sensitive that key executives of some of these corporations have been summoned to Washington, D.C. to testify before the House Energy and Commerce Committee on April 21. I personally think it will be interesting to see how this plays out. For the first time, corporate America will be center stage, with the opportunity to explain its viewpoint of the impact the new law will have on businesses.

Regardless of which side of the debate you are on, the reality is that there is only so much revenue to go around, and the total cost of the health care “fix” is approximately $940 billion. The funding for this must come from somewhere, and that somewhere is in the form of increased taxes and decreased reimbursements to health care providers, with a combined total of almost $1.1 trillion.

The one thing I believe we can continue to count on is this: If in fact the new law is truly bad for corporations and business in America, the announcements in the media over the last week will certainly not be the last of their kind. After all, America (for the time being) is still a capitalistic society. As long as it is, corporations throughout the country will take whatever means necessary to ensure profitability, maximize capital investments, and ultimately preserve and increase returns paid to their investors.

In the end, as with any change, there will be those who win, and unfortunately there will be those who do not. While it is way too early to comprehend the impact of all the intended and unintended consequences of the new law, we can only hope the capitalistic spirit of our country perseveres over the long run, so that as a collective group we will be stronger tomorrow than we are today.