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General Electric's Curious Medicare Move

General Electric apparently got out in front of healthcare reform that reduces a Medicare subsidy by contracting CVS Caremark to administer the prescription plan for its retirees.
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) -- As several companies announced write-downs related to a Medicare subsidy quashed by new healthcare legislation,

General Electric

(GE) - Get General Electric Company Report

appears to have been out ahead of the issue, though details are scarce.

Companies including


(CAT) - Get Caterpillar Inc. Report



(T) - Get AT&T Inc. Report

, and

Deere &Co.

(DE) - Get Deere & Company Report

disclosed write-downs as new healthcare legislation passed last week eliminated a federal subsidy to companies that extended drug coverage to their retirees.

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The issue is viewed by some to be of greater political than financial importance. Many companies bristled at financial reform, and have also been generally unhappy with the Obama administration's recent policies and pronouncements.

Standard & Poor's issued a release saying the AT&T write-down would not impact its rating, and Tom Kelly, an analyst who follows chemical companies and others broadly categorized as "basic industries," told me he expects no impact on corporate ratings related to the removal of the subsidies, as the companies that have announced the write-downs have strong credit ratings and the write-downs are non-cash. (In other words, they are estimates about the future. No actual money is involved yet.)

Democrats have responded to the write-downs by calling the leaders of the companies disclosing charge estimates before a Congressional committee on April 21 to explain their math. Meanwhile, the announcements so far seem to have had little if any impact on their shares. The stock price of AT&T, which announced the largest write-down yet at $1 billion on Friday, about two hours before the market closed, saw its share rise slightly, and they were up again Monday.


told Bloomberg

it expects no material impact from the changes. It received an $83 million benefit tied to the subsidy in 2008 and 2009, and was forecasting gains of $70 million in 2010 and $5 million annually thereafter, according to the


report and Securities and Exchange Commission filings.

Though these are miniscule numbers for a company as large as GE, $70 million to $5 million is nonetheless a big drop. Healthcare reform was far from a done deal when GE filed its annual report, so why was GE already counting on essentially doing away with the subsidy?

A footnote in GE's latest 10-K filing states General Electric "contracted with a third party to administer our principal post age-65 drug plan as a Medicare-approved prescription drug plan," and as a result, the plan would no longer qualify for the subsidy as of Jan. 1.

Why would GE willingly give up a subsidy?

"We anticipated that healthcare reform could potentially change many aspects of healthcare, including the tax-free subsidy. We acted in a manner we believe to be in the best interests of GE, our retirees and our shareholders," wrote GE spokeswoman Anne Eisele, in an emailed response to my questions.

There is still something puzzling about this. Why give up $65 million before you have to? Was GE compensated in some way, I wanted to know. Eisele said it received no compensation from

CVS Caremark Corp.

(CVS) - Get CVS Health Corporation Report

, which is administering the GE plan.

GE must get something out of this deal, I insisted, but Eisele offered no further explanation. CVS Caremark spokespeople did not respond to calls and e-mail messages.


Written by Dan Freed in New York. Lauren Tara LaCapra also contributed to this article.

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