Will Health Reform Cost Retirees Drug Benefits?

By David Pitt, AP Personal Finance Writer

DES MOINES, Iowa (AP) β€” Corporate America says health care reform is going to cost dearly. One company alone, AT&T, says it will take a non-cash charge of $1 billion to account for the change in how retiree drug benefits are taxed. Ultimately companies may think twice about continuing prescription drug benefits for retired workers, leaving many to wonder if their benefits are safe.

The answer for many will be "no."

Millions of retirees receiving prescription drug insurance from a former employer could see their coverage dropped or changed as companies consider how to offset the new taxes.

The health care overhaul takes back a lucrative tax break first offered in 2003 to entice companies to continue offering drug benefits.

Companies were allowed to write-off a tax-free government subsidy of 28 cents for every dollar spent on their programs. Today, hundreds of companies take a tax deduction for the cost of their prescription drug benefits for retirees. The subsidized benefits kept many from having to rely on Medicare.

Under the new health care law, companies will continue to receive a 28% tax-free subsidy but they no longer get the double benefit of deducting the value of the subsidy. The government estimates this change will generate about $4.5 billion over the next decade to help pay for the health care overhaul.

Some business consultants studying the tax changes say as many as 2 million retirees could lose their prescription drug coverage if companies decide to offset the tax by cutting their drug benefits. This would lead to a rise in Medicare enrollment, said James Klein, president of the American Benefits Council, an advocate for corporations offering employee benefits.

"So much for the premise that if you like the coverage you have you can keep it," Klein said.

The alternative to private insurance is Medicare Part D, the government's prescription drug program.

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