Democrats led by Rep. Henry Waxman are furious that several publicly traded companies have already begun issuing writedowns related to the new law. They are accounting for reduced future profits because the new law makes changes to Medicare Part D that will make it more expensive for companies that offer generous prescription medicine benefits to their retirees. Waxman is so angry that he wants to the companies’ executives to testify before Congress about why they’re complying with accounting standards speaking ill of ObamaCare.
As the Atlantic’s Megan McArdle explains in an excellent piece, the companies don’t really have a choice when it comes to writedowns:
[W]hen a company experiences what accountants call “a material adverse impact” on its expected future earnings, and those changes affect an item that is already on the balance sheet, the company is required to record the negative impact–”to take the charge against earnings”–as soon as it knows that the change is reasonably likely to occur.
This makes good accounting sense. The asset on the balance sheet is now less valuable, so you should record a charge. Otherwise, you’d be misleading investors.
And it is, as she also notes, earnings season: the time of year when companies offer “guidance about, um, their earnings.” One possible unintended consequence of the change, she writes, may be that more companies decide “to dump their retiree benefits and put everyone into Part D, costing us taxpayers extra money.”
All of this upsets Waxman, for reasons that McArdle explains:
Obviously, Waxman is incensed because this seems to put the lie to the promise that if you like your current plan, nothing will change. But this was never true. Medicare Advantage beneficiaries are basically going to see their generous benefits slashed, retiree drug benefits suddenly cost more and may now be discontinued, and ultimately, more than a few employers will almost certainly find it cheaper to shut down their plans. If Congress didn’t want those things to happen, it should have passed a different law.
If Congress thinks that it made the right tradeoffs–or at least, justiiable choices–then our Congressmen should step up and accept responsibility for what they’ve done. At the very least, I think we can ask that they refrain from trying to force companies to join them in denying reality by threatening congressional investigation of any company who dares to notify investors that this thing is going to cost them money.
One final note: If you think the writedowns due to ObamaCare are bad, just wait until the Senate passes cap and trade.