This presentation took place on April 26, 2010 at the American Hospital Association in Washington, DC.
Click American Hospital Association Presentation to view a PDF version of the presentation.
“Health Insurance Exchanges,” American Hospital Association, April 26, 2010.
April 21, 2010
Written by Shuchia Madan
Companies such as Boeing and Caterpillar Inc. claim they will report a decrease in their earnings as a result of health reform because they no longer can receive a tax break for retirees’ drug benefits. When companies show that they have a charge of $ 1 billion on their books in the first quarter as a result of the new health reform law, this does not clearly state what is going on.
An editorial in the New York Times describes what the health care bill will change for companies and their accounting practices. The amount that is being shown now, is a lump sum of what companies will be paying for retirees over many years, basically, they will not receive the $1 billion charge in the first quarter(AT&T), it will take effect in the next 30-40 years.
How Medicare works with companies: for every $100 that was spent on retiree drug benefits by an employer, Medicare paid a subsidy of $28 (tax-free) and the company was able to deduct the $100 expense instead of $72. With the new law, there is still the subsidy of 28% (tax free), but companies can now only expense the $72 they actually paid. Which is why the old way was called “double dipping.” They were being subsidized for accepting the subsidy!
Some companies have already made changes and switched their retirees to Medicare with company subsidies that still save the company money compared to their own retiree insurance costs, so one’s net expenses have decreased. According to the article “Obamacare has upsides for big employers: Change to save millions by offloading retiree coverage”, by 2020 Medicare will pay for 75% of prescription drugs versus 50% Medicare currently pays. The health care bill fixes the donut hole in Medicare prescription coverage and by establishing insurance exchanges-companies will experience immense savings on their health care expenses for employees. In the future, this could possibly eliminate companies providing insurance for their retirees, reducing overhead costs all together. The savings that companies will experience can be huge, for example, Catepillarreports that they “moved 9,500 non-union retirees 65 and older from a traditional insurance plan to a mixture of Medicare and a company subsidy,” saving $60 million and reducing liabilities by a significant amount.
The health care bill provides $5 billion in subsidies for employers with employees under 65 retirees . Companies are more willing to have their retiree employees in Medicare as the donut hole issue is resolved (in addition to the exchange). With the establishment of exchanges, this will help companies-they can drop their expensive plans they provide for employees. The exchanges aim to reduce prices and barriers-allowing those under 65 and retired to obtain coverage that is more affordable. Len Nichols is quoted in the article, saying “There is no question that companies large and small will be better off with health reform than they would be without it.”
Read the full article, “Obamacare has upsides for big employers: Change to save millions by offloading retiree coverage” written by John Pletz. Read the op-ed article in The New York Times.
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