Employers United: An Empirical Analysis of Corporate Political Speech in the Wake of the Affordable Care Act

Article excerpt

I. INTRODUCTION

Securities and Exchange Commission (SEC) Form 8-K offers a unique platform for corporate political speech. The requirement that publicly traded firms issue real-time disclosures of material changes to their expected results1 both requires and allows companies to publicly comment on the financial impact of newly enacted laws. Our unique empirical study examines one such disclosure episode that immediately followed the enactment of the Patient Protection and Affordable Care Act (ACA), on March 23, 2010.2 Following passage of that historic legislation, close to 150 companies wrote offa total of $5 billion against their 2010 earnings, triggered by just one relatively minor provision of the ACA.3 These write-offs signaled the potentially crippling impact of the entirety of the ACA on employers and the feasibility of continuing to offer employee health insurance plans. Officials in Congress and President Obama's Administration quickly rebuked the firms for unnecessarily alarming the public about the negative effects of the Administration's signature legislation.4

The Supreme Court's June 28, 2012 decision in National Federation of Independent Business v. Sebelius,5 upholding virtually all of the ACA, means that the law is here to stay, barring dramatic changes in the November 2012 elections and repeal of the legislation. Meanwhile, employers continue to express serious concerns about the future of employer-based health insurance.6 We recognize that SEC-compelled speech may, under certain circumstances, carry a political message and the implications of extending First Amendment protection to those statements.7 We also recognize that the Supreme Court recently extended even greater solicitude to corporate free speech rights and political participation in Citizens United v. Federal Election Commission.8 But what we find more troubling is the government's potential to chill otherwise accurate disclosures by damning them as political gamesmanship.9

Passage of the ACA did little to quell employers' persistent concerns about escalating health care costs and their ability to continue offering health insurance benefits to retired and active employees.10 Several provisions of the ACA, including the "Cadillac tax" on high-cost health plans,11 restrictions on lifetime and annual benefits caps,12 the extension of dependent child coverage,13 employer pay-or-play penalties,14 and new disclosure and reporting requirements, will be potentially very costly for employers.15 Those changes are against a baseline of ever-increasing costs; in 2013, health care costs are expected to rise 7.5%, which costs employers will either have to absorb, or find ways to reduce or offset.16

Although many ACA provisions will impact employers as they are implemented over the next several years,17 only one, involving a change in tax treatment for federal subsidies to employers,18 had an immediately reportable impact on firms' financial results in 2010. The ACA provision triggering the 147 companies' SEC filings purported merely to clarify tax treatment of a federal subsidy to employers offering prescription drug benefits to retired workers. Previously, employers accepting the federal retiree drug subsidy (RDS) could both exempt the subsidy amount from their taxable income and deduct that same amount as a business expense.19 Under the ACA, firms still may receive the subsidy tax-free but may no longer take the deduction.20

The narrative that the Obama Administration and ACA proponents told was that the firms' high-dollar write-offs were nothing more than sour grapes and disingenuous attempts to perpetuate the partisan battle, even after the ACA was finally and validly enacted.21 Our study tells a different story. First, we establish that the RDS write-offs were required under applicable SEC rules and consistent with financial accounting standards. Those firms issuing more prominent SEC disclosure statements regarding the RDS generally were the firms that experienced greater financial impact as a result of the change. …