The Obama administration says employers may be exaggerating the effects of a Medicare Part D drug program subsidy tax change included in the new Patient Protection and Affordable Care Act.
“I think this has maybe been framed as a lot more than meets the eye,” White House Press Secretary Robert Gibbs said Tuesday during a White House press briefing.
PPACA, the new health system change law based on H.R. 3590, now requires affected employers to deduct the 28% federal retiree drug benefit plan subsidy payments from their health expense deduction.
The government will not tax the subsidy directly, but employers’ tax bills will increase as if they did have to pay taxes on the subsidy, according to PricewaterhouseCoopers L.L.P., New York.
Employers and groups that represent them, such as the American Benefits Council, Washington, say Congress gave employers the subsidy in the first place to keep them from dropping drug benefits and sending retirees to enroll in the Medicare Part D prescription drug plan. The subsidy saves the Part D program money, the benefits council says.
Accounting rules require publicly traded employers that get the subsidy to include a charge in their first-quarter earnings statements to reflect the effects of the tax change, the council says.
Several companies, including AT&T Inc., Dallas, and Prudential Financial Inc., Newark, N.J., already have announced plans to take Part D-related charges.
Some employers may try to avoid the charge by dropping retiree drug benefits, the council says.
The House Energy and Commerce Committee’s oversight subcommittee plans to hold a hearing April 21 on the issue.
Gibbs noted at the press briefing that Congress created the 28% subsidy in 2003, when it created the Part D drug program.
“Firms that provided coverage for retirees were given a 28% subsidy in order to continue providing that coverage,” Gibbs said, according to a transcript provided by the White House. “Right? That amount of money was not added to a company’s income. Right? So they got 28% to continue that, and under the previous law–which I think many considered to be a loophole–not only did they not get taxed on that 28%, but then they were able to write off the full amount spent on retiree prescription drug coverage–the money they kick in plus the 28% that taxpayers kick in.”
The PPACA now lets an employer that receives the subsidy write off expenditures on retiree drug benefits just once, rather than not counting it as income as well as being able to write it off, Gibbs said.
“There are several billion dollars in the bill to help on retiree prescription drug benefits,” Gibbs said.
In addition, several studies have shown the health reform should eventually lower the cost of employers’ health insurance premiums, and the stock of AT&T went up on the day it announced its Part D charge, he said.