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Council: Health Bill To Slam Retiree Drug Coverage

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A “revenue raiser” provision in the health bill package could force many large employers to drop retiree prescription drug coverage to avoid a big earnings charge.

James Klein, president of the American Benefits Council, Washington, made that prediction in a commentary issued Friday, as the health bill package was moving toward passage.

The package includes H.R. 3590 – the same Patient Protection and Affordable Care Act bill passed by the Senate early on Christmas Eve in 2009. President Obama expects to sign that bill into law Tuesday.

The package also includes H.R. 4872, the Reconciliation Act of 2010. That bill, which includes “fixes” sought by members of the House, still must be approved by the Senate before it can become law.

Republicans have talked about finding ways to repeal parts of H.R. 3590 or block implementation in court, but, as of now, H.R. 3590 is on track to become law no matter what happens to H.R. 4872.

Both H.R. 3590 and H.R. 4872 include provisions that would change a popular tax deduction for employers that receive Medicare Part D retiree drug subsidy payments. The H.R. 3590 version would take effect Jan. 1, 2011, and the H.R. 4872 version would take effect 2 years later.

Both versions would have the effect of reducing allowable deductions for the 28% Part D subsidy, Klein says in the benefits council commentary.

U.S. accounting rules would require publicly traded companies that have been using the deduction to charge the present value of decades of future extra retiree benefits program taxes against current earnings, the council says.

“Absorbing this kind of earnings hit would be deeply disruptive in today’s economic environment,” Klein says in the commentary.

For the large employers that continue to offer retiree drug benefits, the easiest way to avoid the hit will be to drop retiree drug coverage, Klein says.

Congress included the provision in an effort to raise $4.5 billion in additional tax revenue, but, if the retirees who now have employer-sponsored drug benefits move into the government Medicare Part D prescription program, that could eat up some or all of the additional revenue, Klein says.



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