Obamacare was sold as a way to improve benefits and expand coverage.  But it doesn’t seem to be panning out that way.

Almost immediately, major companies offering excellent health coverage to both active workers and retirees said the new law would cost them a bundle.  AT&T alone said they’d have to set aside an extra $1 billion in the first quarter due to an Obamacare tax on their retiree drug coverage.

Now, both retirees and current employees of AT&T and other affected companies are “wondering whether the new law could mean reduced or canceled benefits for them in the future,” reports Byron York of the Washington Examiner.

Obamacare devotees have described the tax on retiree drug benefits as a move to close a “loophole.”  The government, they said, was actually subsidizing the company-paid benefits, so the tax is merely a way to recoup some of the government’s money. Sounds reasonable.  Until you get the back story and the details.

The government “subsidy” was created in the Medicare Modernization Act of 2003, when Congress was busy passing the last new big entitlement before Obamacare:  a universal prescription drug benefit for all Medicare beneficiaries. That baby added- drum roll please-  roughly $8 trillion to the unfunded liability of the Medicare program.

Back then, roughly three out of four seniors already had prescription drug coverage of some sort—often as a retirement benefit.  Rather than provide a prescription drug benefit for only those who needed it, both Democrats and Republicans in Congress wanted a universal drug entitlement added to Medicare. So, the Congressional Republican leadership enacted it. And the taxpayers were henceforth on the hook for Medicare drug coverage for all seniors—even the wealthiest—if they wanted it.

During the big Medicare drug debate of 2003, the Heritage Foundation argued strenuously against this extravagant approach, warning that it would inevitably crowd out private coverage.  The Congressional Budget Office, too, cautioned that the universal entitlement would encourage companies to dump their drug coverage for retirees.

To keep companies from dumping coverage as a result of their own handiwork, Congress offered tax free federal subsidies to private companies to keep offering prescription drug benefits to their retirees.  After all, it was cheaper for the government to help subsidize the private coverage than to pay the entire cost of the coverage through Medicare.

But it was a case of “fixing” bad policy with more bad policy.  Congress effectively ensured that, whether seniors receive subsidized private benefits or the new Medicare benefit, taxpayers would foot the bill.

Cut to Obamacare.  To help pay for a whole new health entitlement expansion, it guts the old “fix” that was originally designed in 2003 to prevent disruption of seniors existing drug coverage . This takes bad health policy to a whole new level.  Instead of helping offset the cost of Obamacare, it will doubtless encourage  companies to scale back or even drop their retiree drug benefits altogether, thereby increasing the number of seniors  directly dependent on the Medicare program. Of course, any additional costs from this latest move will be billed to the same folks who paid for Congress’s  2003 corporate welfare subsidies: the taxpayers. How clever.

To learn how the Medicare prescription drug coverage should be designed, click here.