Inside This Issue - News
Tax break ended by health care reform
April 26th, 2010
NEW YORK – Walgreen Co. is among the corporations that will take an accounting charge because of health care reform’s reduction of tax deductions for retiree drug coverage.
Walgreens said it anticipates a charge of some $40 million to deferred taxes in the third quarter of fiscal 2010.
The new law has prompted a number of companies to warn of onetime charges, most in the millions of dollars up to $150 million, although AT&T announced a $1 billion booking. The companies in the Standard and Poor’s 500-stock index will take a combined charge of $4.5 billion this quarter, according to an estimate by Credit Suisse analyst David Zion.
When Medicare Part D was enacted under President George W. Bush, the legislation included large, tax-deductible subsidies to encourage companies to continue providing private drug coverage to retirees. Under the health care overhaul the government will continue providing those subsidies — 28% of a drug plan’s costs, or up to $1,330 per retiree — but take away the tax break.
“As more retirees are moved from employer plans to Medicare Part D, government outlays will increase, and the shift from employer retiree drug subsidy programs to Medicare Part D is likely to be significant,” American Benefits Council president James Klein said. “In the end, this so-called revenue-raising provision may actually cost the government money.”
Council members include Walmart, Kroger Co. and Procter & Gamble Co.
“We understand the Obama administration doesn’t want a shadow cast over its historic legislative achievement, but the fact of the matter is 1.5 million to 2 million retirees will not be able to keep the coverage they like,” Klein added. “We urge the White House and Congress to reverse this provision of the law at the first opportunity.”
Administration officials defended the deduction’s repeal as a means of closing a tax loophole. They said reform would save businesses more than $150 billion over the next 10 years in lower health care costs.
The corporate charges to earnings have also been challenged by Rep. Henry Waxman (D., Calif.), chairman of the House Energy and Commerce Committee. Waxman asked the chief executives of AT&T and other companies to justify the charges.
“The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern,” Waxman and Rep. Bart Stupak (D., Mich.) wrote to the CEOs. “They also appear to conflict with independent analyses.”
Waxman and Stupak said the Congressional Budget Office had found that average premium costs per person would drop as much as 3% by 2016 for companies insuring more than 50 employees.