The health care reform law changed the game for retiree prescription drug benefits. The rebate to employers who kept this coverage in place when Part D was implemented is no longer tax free. The rebate originally designed to encourage employers not to dump retirees into Medicare thereby saving the government money for this unfunded benefit, magically became a tax “loophole” in the quest for revenue to offset health care reform costs even though the original intent of the Medicare law was perfectly clear.
Because employers booked this additional expense thus lowering 2010 earnings (as required by accounting and SEC regulations), they are now being hauled before Congress to explain their actions, the result of embarrassment to Democrats. Companies are overreacting we are told. Amazingly (or not) the Administration wants companies to offset these costs with the “savings” that will be generated by Obamacare.
Psssst, don’t let it get around but for large, self funded employers like we are talking about here, there are no savings. Of course that is also true for anyone with health insurance today unless you are about to have the government subsidize your premiums.
But that is not the end of the story. Companies are evaluating their options to eliminate or greatly scale back this retiree benefit, because not only is there an immediate impact on earnings, there is also an ongoing impact each year into the future. It remains to be seen how embarrassed Congressional leaders will be when these retiree benefits disappear and in the process government costs rise.
Companies are not above criticism either. Those that do eliminate or cut these prescription benefits are reprehensible. These retiree benefits are not gifts, they were earned during the working years of each of these individuals. Many were negotiated and thus if they did not exist wages and other benefits would be higher. Retiree benefits are a promise that corporations need to keep. Lower income and older retirees will be most adversely affected by elimination of this benefit, their costs will go up which means their disposable income will go down. It is unlikely that a company would go to its workforce and say,
“things aren’t going too well this quarter, we need you to give back that bonus your earned in 2003.”
This is no different except the retiree benefit was earned over 30 or more years of employment.
I suspect ultimately the consequences of all this will go unnoticed; there are only five million retirees and their spouses potentially affected. No doubt the blame can easily be passed on to highly paid CEOs and insurance companies. That seems to be standard practice these days.
There is an interesting Op-ed piece in the Wall Street Journal that talks more about this issue and it’s impact.
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