One change to health care discourages employers from providing insurance

June 25, 2010
By

People in our community still among the fortunate 18.5 million American retirees receiving employer-provided health care coverage are within one of two groups:

•14.3 million people who are Medicare-eligible and receive employer-provided health care as supplemental insurance. According to the Congressional Budget Office, this includes 9.5 million people receiving employer-provided drug coverage, thus obviating the need for Medicare Part D, which in most instances would be more costly.

•4.3 million people who are too young for Medicare and have employer-sponsored health care as primary coverage.

In 2004, when the Medicare Modernization Act (creating Medicare Part D) was first passed, there was a fear that employers who were providing retiree drug coverage would use the law as an excuse to drop their Medicare-eligible retirees, forcing the government to take over. So a very lucrative deal was offered to employers: For every $100 the company spends on retiree drug benefits, Medicare sends it a subsidy payment of $28. On top of that, the companies got a rare double tax break. The $28 subsidy is tax-free, and the company was allowed to deduct the entire $100 as a business expense.

The new 2010 version of health care reform law has left the 28 percent subsidy intact and continued to exempt it from taxation. But companies will no longer be allowed to also deduct the subsidy on their tax return, as if it were an expenditure of their own. This has caused major corporations to weigh the cost of their plans against the $2,000 per employee/retiree penalty which would be imposed by the new federal health care law should they drop the health plan coverage altogether.

According to a 2009 Kaiser Family Foundation study, the average cost for an employer-provided health plan approaches $5,000 for an individual and over $13,000 for a family. If you were an employer, could you imagine a better boost to your bottom line than to get out of the insurance business? If you were an employer, wouldn’t you gladly accept the penalty if it would save millions of dollars? Wouldn’t it be irresponsible to your stockholders to do otherwise? Wouldn’t Congress have the intelligence to anticipate this obvious result?

Remarkably, the Congressional Budget Office (CBO) has not included the cost of 9.5 million people having to migrate from private employer coverage to Medicare in its National Healthcare Reform projections. However, should the 9.5 million get dumped, that cost would be an additional $5.4 billion over the original projections.
Whatever the motivation, Congress has kept the employer penalty low, and private sector employers are presented with an open invitation to drop health care coverage for both active and retired employees.

Retirees need action from Capitol Hill before Washington takes its summer break for election primaries. When Members of Congress hold town hall meetings in their districts as we get closer to November, we all need to ask why they allowed retirees to be thrown under the proverbial bus by providing such an employer inducement to drop coverage and how they plan on fixing the mess they created for us.

Carol A. Pitman
Jamaica Plain

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