Calculating the cost for US business

Health reform cost for business

Now that it's started to hit home that President Obama has passed a healthcare reform, US businesses have started to tally up the financial hit they'll take from the landmark legislation.

An association, the American Benefits Council, representing 300 large corporations, is urging Obama to repel a provision of the healthcare overhaul, which reduces the tax deductions for companies with drug coverage for their retired employees. It's being said that the provision would deal a significant blow to corporate profits and would discourage companies from hiring more workers.

James A. Klein, the president of the American Benefits Council, called the provision "a serious mistake that is having negative and unintended consequences."

Although the government will continue to pay subsidies to large companies, including AT&T Inc, Caterpillar Inc and Deere & Co, to help pay for prescription drug benefits for their large ranks of retirees, the new laws now means companies can no longer deduct the amount of subsidies from their taxable income.

A number of large US employers have started detailing the expected hit to their bottom line. The latest warning came from Illinois Tool Works Inc, which said it would take a $22 million charge related to the change.

But not all big companies are warning of trouble. General Electric Co, for example, says it doesn't expect a "significant material impact" on its first-quarter results, Reuters reports.

Calculating the cost

Construction equipment company Caterpillar estimated it would take a $100 million hit as a result.

Then came tractor maker Deere & Co. warning of a $150 million reduction to earnings this quarter. Then, AT&T topped them both, saying it would take a $1 billion charge.

Jim Dugan, a Caterpillar spokesman, said his company has raised concerns about the issues surrounding retiree benefits since late last year and plans to keep doing so.

"Our intention is to continue to communicate with lawmakers and others about our concerns with the law, in an effort to make sure the impact of the law is understood," he said in an e-mail, BusinessWeek reports.

About 3500 employers provided prescription drug coverage to 6.3 million retirees nationwide who qualified for a federal subsidy in 2008, according to New York-based Towers Watson.

The subsidy is paid by the federal government to companies that provide prescription coverage to former workers. Under prior law, the payment to companies was tax-exempt.

The provision was created when Congress and President George W. Bush created a drug plan for seniors in 2003. It was designed to encourage companies to continue to provide prescription coverage for retirees who might otherwise be on a Medicare Part D plan.

By eliminating the exception, it will raise around $4.5 billion over 10 years, according to estimates by federal officials.

Jodie Humphries

Jodie Humphries graduated from Bath Spa University with a BA Hons in Creative Writing in 2008. She has worked for GDS Publishing for the digital group since July 2009. She has previous experience with writing for the web, running her own website since April 2007.

Related News:

Full debate for healthcare reform after Senate vote |Healthcare reform to cost $940 billion |Breast cancer and the healthcare reform |New health reform plan

Like this article? Get the RSS feed: