Legal Commentary

Why Would Congress Question Corporate Executives About Disclosures of Health Care Costs?

By Jim Lindgren

Megan McArdle has a good post on Congress?s decision to hold hearings about corporations? disclosing their charges against earnings based on estimates of health care costs:

The Democrats, however, seem to believe that Generally Accepted Accounting Principles are some sort of conspiracy against Obamacare, and all that is good and right in America.

Here?s the story: one of the provisions in the new health care law forces companies to treat the current subsidies for retiree health benefits as taxable income. This strikes me as dumb policy; there?s not much point in giving someone a subsidy, and then taxing it back, unless you just like doing extra paperwork. And since the total cost of the subsidy, and any implied tax subsidy, is still less than we pay for an average Medicare Part D beneficiary, we may simply be encouraging companies to dump their retiree benefits and put everyone into Part D, costing us taxpayers extra money.

But this is neither here nor there, because Congress already did it. And now a bunch of companies with generous retiree drug benefits have announced that they are taking large charges to reflect the cost of the change in the tax law.

Henry Waxman thinks that?s mean, and he?s summoning the heads of those companies to Washington to explain themselves. It?s not clear what they?re supposed to explain. What they did is required by GAAP. And I?ve watched congressional hearings. There?s no chance that four CEO?s are going to explain the accounting code to the fine folks in Congress; explaining how to boil water would challenge the format.

Fair enough. But I?ll bet that there will both a few moments of effective Congressional demagoguing and a few moments when the corporate officials are successful in depicting that the hearings are a farce and that corporate accounting is a lot more sensible than government accounting.

Why bring in these corporate officials and ask them questions, when the members of Congress must know they won?t like some of the answers? I think the real reason for announcing the hearings is to intimidate other firms who have not yet taken a charge-off to get them to make only a small one ? or none at all. These hearings, coupled with the phone calls from the White House complaining to the corporations about their disclosures, seem part of an effort to remind corporate America that their actions are not viewed positively by those who write and enforce the laws.

It?s not a threat, just a reminder . . . .

UPDATE: For some reason, the words of the eminent journalist Kent Brockman come to mind: ?I, for one, welcome our new insect overlords.?

Full post as published by The Volokh Conspiracy on March 31, 2010 (boomark / email).