Healthcare reform will start off with a bang for those companies that still provide their retirees with prescription drug coverage. The legislation imposes a tax on the federal subsidy to employers providing such coverage, and accounting regulations will translate that tax into a charge to earnings.
The tax on the drug benefit subsidy "has nothing to do with health reform. It doesn't help the uninsured get insurance, it doesn't keep people in the game," says Kenneth Porter, chief actuary and senior vice president at the American Benefits Council, which represents large companies on employee benefit issues.
"What it does do is cause an incredibly large accounting charge to be taken by corporations. Even though the tax is not imposed until 2011 or 2013, accounting rules require the charge be taken this quarter," Porter says. "The only way a company can avoid taking that hit to earnings is to announce in the next few weeks that they will no longer provide prescription drug coverage to seniors."
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