 |
NEWS RELEASE
March 19, 2010
Employer sponsors of retiree drug plans face immediate decision: eliminate coverage or take huge hit to earnings
WASHINGTON, DC — “If and when President Obama signs the health care reform bill into law, potentially over the next few days, many of America’s largest employers will be forced to make an unpleasant choice: drop their retiree prescription drug coverage or take an earnings hit that could seriously damage the company,” said American Benefits Council President James A. Klein today. “That is why organized labor and the business community are united in our concern over the impact of the provision in the health reform bill that would force this choice,” Klein said. The legislation would reverse a carefully negotiated element of the Medicare Modernization Act (which established the Medicare Part D prescription drug benefit) by reducing allowable deductions for the 28 percent subsidy that employers receive for providing drug coverage for retirees. Financial accounting rules, enforced by the Securities and Exchange Commission, require that immediately upon being signed into law, the present value of decades of future taxes must be charged against current earnings. This would substantially increase liabilities for the very companies providing the most comprehensive coverage to the largest populations of current and future retirees. “Absorbing this kind of earnings hit would be deeply disruptive in today’s economic environment,” Klein said. A study released by the Towers Watson consulting firm estimated that the aggregate hit on corporate financial statements would be $14 billion if companies did not move their retirees out of the drug subsidy plans. Another study commissioned by the American Benefits Council concluded that between 1.5 million and 2 million retirees would not be able to keep the coverage they have, since employers would be compelled to move them to the Medicare program in order to avoid the accounting impact. “Most ironic of all, this provision has been tacked on to the health care bill as a revenue-raiser ($4.5 billion), but in fact it could end up losing the government money. The $4.5 billion figure only looks at the revenue from the tax; it does not take into account the increased government outlays as retirees are moved to the Medicare Part D program. As more retirees are moved, the revenue collected will go down and the government expense in Medicare will go up,” Klein noted. “Unless lawmakers fix this problem before enacting health legislation, a classic “no-win” situation will result: Companies will take a big financial hit, retirees will see their coverage change and the government will get little net revenue and may end up losing money,” Klein concluded. For more information, or to arrange an interview with Council staff, please contact Jason Hammersla, Council director of communications, at 202-289-6700 (office) or (202) 253-5458 (cell)
The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.
|
