Large Employers Immediately Feeling the Effects of Health Reform

A number of major employers, such as Caterpillar, AT&T, AK Steel, 3M, John Deere, and Valero Energy, have indicated that a provision in the new health law relating to retiree prescription drug benefits will cost them millions of dollars this year alone. Attempting to raise revenue to pay for the new bill, the legislation includes a provision that repeals a tax deduction that employers receive for offering prescription drug benefits to their retiree population. When Medicare Part D was passed in 2003, the federal government began offering a 28% tax deduction for employers that offered prescription drug coverage that is, at minimum, actuarially equivalent to coverage offered in Medicare Part D. As a result of the legislation, employers will still receive the subsidy for providing this service to their retirees, but they no longer will be able to benefit from a tax deduction.

While the provision does not go into effect until 2013, employers will have to immediately begin accounting for it in their books. Last week AT&T announced that it would take a $1 billion charge because of the provision. John Deere's parent company, Deere & Company announced a $150 million charge and their competitor Caterpillar is predicting a $100 million charge.

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