US Democrats challenge claims of reforms cost
By Stephanie Kirchgaessner in Washington and Jeremy Lemer in New York
Published: March 26 2010 23:27 | Last updated: March 26 2010 23:27
Democratic lawmakers on Friday challenged assertions by some large US companies that their earnings would be hit by the healthcare reform signed into law this week.
The dispute involves the tax treatment of a subsidy for companies to help them pay for Medicare drug coverage of retirees. Under a law passed in 2003, companies have been able to take a tax deduction when they spend that subsidy. Under the law, the Medicare drug subsidy offered to corporations will continue to be tax-free. But beginning in 2013, companies will have to reduce their tax-deductible drug costs by the amount of the subsidy.
Based on their own calculations, companies including Verizon, John Deere and Caterpillar have claimed that the law would increase expenses and potentially require changes to healthcare benefits.
Henry Waxman, Democratic chairman of the House energy and commerce committee and a strong advocate of healthcare reform, requested that the chief executives of the three companies hand over information about the accounting methods they had used for dealing with the subsidy.
“The new law is designed to expand coverage and bring down costs, so your assertions are a matter of concern,” Mr Waxman said in a letter to the companies. “They also appear to conflict with independent analyses.”
According to David Zion, a Credit Suisse analyst, the change would have the same effect as if the subsidy were taxed. Mr Zion said that of 315 Standard & Poor’s 500 companies that offer post-retirement employee benefit plans, only 132 companies disclosed that they received the subsidies and only two – Boeing and US Steel – revealed how much their retiree obligations were reduced by the subsidy. The 132 companies were expected to receive $972m in subsidies in 2010, reducing their retiree obligations by 7 per cent.
News of the congressional inquiry came as AT&T, the US telecommunications giant, said it would take a $1bn non-cash charge in the first quarter as a result of the law. The company also said it was rethinking benefits for current and retired employees.
Mr Waxman and Bart Stupak, Democratic chairman of the oversight and investigations subcommittee, asked the chief executives of Verizon, John Deere and Caterpillar to provide the committee by April 9 with any analyses related to the projected effect of health reform, and any documents related to the issue.