The American Benefits Council and AFL-CIO urged Senate Majority Leader Harry Reid on Thursday to eliminate a provision within the Senate health care reform bill that threatens employer-sponsored drug coverage for retirees.

The American Benefits Council and AFL-CIO sent a letter to Sen. Reid, insisting the removal of Section 9012 included in the Patient Protection and Affordable Care Act. The provision would limit the tax deduction available to employers for the cost of providing prescription drug benefits to retirees.
The provision reverses a policy of the Medicare Modernization Act enacted in 2003 by taxing the 28 percent subsidy that employers receive for providing drug coverage for retirees.

"The tax change would fall most heavily on older, well-established companies with large numbers of legacy retirees," writes Martin Vaughn of Dow Jones Newswires. By losing part of the tax deduction, companies, already burdened with costly retiree benefits, would be pressured to drop prescription drug benefits altogether.

"The current tax treatment of the subsidy was included in the Medicare Modernization Act of
2003 precisely to encourage employers to continue sponsoring drug coverage for retirees - not only helping to preserve this important benefit, but also resulting in savings to the federal government by avoiding the necessity of many retirees to obtain Medicare Part D coverage," writes James A. Klein, president of the American Benefits Council and William Samuel, Department of Legislation director for AFL-CIO.

"Unless a tax provision tucked into the Senate health reform measure is deleted, then on the day the legislation is signed into law, employer sponsors of retiree prescription drug coverage will face an immediate hit on their income and balance sheets, with corresponding financial market implications. In addition, the ability of employers to obtain needed capital to finance operations will be impaired. This will compel many employers to drop the coverage, forcing millions of retirees into the Medicare Part D program and costing the taxpayers billions of dollars," Klein said in a press statement before the public release of the letter.

The Joint Committee on Taxation estimates the proposal will increase federal revenue to help pay for the Senate's bill by $5.4 billion over 10 years.

"Business and union officials said that if just 24% of retirees that are now covered by employer plans enroll in Medicare Part D as a result of the change, the change will end up costing the government money," Vaughn writes. "That is because the government pays $628 on average in subsidies for each retiree covered by an employer plan, while providing Medicare Part D coverage costs the government about $1,142 per person per year, according to the American Benefits Council."

Instant Insights /

Senate&#039;s health bill threatens retiree drug benefits, groups say

More From HR Executive

Related Stories

Recommended For You

Senate's health bill threatens retiree drug benefits, groups say