The Corner

More on That Verizon Memo

Yesterday I posted a memo that Verizon sent to its employees concerning its view that the Democrats’ health-care bill would probably cause its costs to go up. Specifically, the memo keyed in on a change in the tax treatment of the Medicare Part D retiree drug subsidy. This is a subsidy that the government pays to employers that offer prescription-drug coverage to their retirees; it was created as part of the Medicare prescription-drug entitlement to encourage employers not to dump their retirees into the public system. As the Wall Street Journal editorial board reports today, the subsidy costs taxpayers $665 per person, “while the same Medicare coverage would cost $1,209.”

As part of their effort to keep their health-care bill deficit-neutral, the Democrats changed the law and exposed the subsidy to the 35 percent corporate income tax rate, adding $5.4 billion in revenue to the bill. In its memo to employees, Verizon warned that this tax change would make the subsidy “less valuable to employers, like Verizon, and as a result, may have significant implications for both retirees and employers.” This is a clear sign that Verizon and other employers will probably drop their retiree prescription-drug coverage, leaving Medicare Part D to pick up the slack.

But surely the Congressional Budget Office, in scoring the Democrats’ bill, accounted for the possibility that employers would drop their retiree drug plans, thus increasing Medicare Part D outlays and canceling out — or even exceeding — that extra $5.4 billion in revenue, right? No, the CBO did not. “We tried to get them to score it,” says a spokesperson for the American Benefits Council, which recently put out a study warning that the tax change would encourage employers to cut back on their retiree plans. “But CBO can only score what’s in front of them, and we couldn’t get them to account for retirees that would be added to Part D.”

Chalk it up as another budgetary gimmick in a bill full of them: A provision that is likely to increase government spending got scored as $5.4 billion in revenue.

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