7/31/2019 The Facts about Health Care Reform and the Medicare Retiree Drug Subsidy

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TheFactsaboutHealthCareReform

andtheMedicareRetireeDrugSubsidy

TheMedicareRetireeDrugSubsidy1.TheMedicareModernizationActof2003(MMA)createdanoutpatientprescriptiondrug

benefit(knownasMedicarePartD).Thelawincludedasubsidyforemployerswhoprovide

retireedrugbenefitsatleastequalinvaluetothePartDbenefits.Thesubsidywasintendedas

anincentiveforemployerstocontinuetoprovidebenefits.

2.Thesubsidyreimbursedemployers28percentofthecostofactualspendingonprescription

drugsforMedicareeligibleretirees.

3.

The

subsidy

was

provided

tax

free.

The

cost

of

providing

retiree

prescription

drug

benefits

wasalreadytaxdeductible.So,employerscoulddeductthetotalcostoftheirretireedrug

plans,plusgetasubsidy,andnothavetopayanytaxesonthesubsidy.Forexample,an

employerwhopaidout$100millioninretireedrugbenefitswouldqualifyfora$28million

subsidy.TheCompanysrealexpenseswereonly$72millioninbenefits,butitwasableto

deductthefull$100millionfromitstaxableincome.

2010HealthCareReform4.ThecurrentCongressionalthinkingisthatthearrangementisbadtaxpolicybecause

employersgetadeductionforexpensestheydidnotactuallypay.

5.The

recently

enacted

reform

package

allows

employers

to

deduct

the

cost

they

pay

for

retireedrugbenefits.Theywillcontinuetoreceivethesubsidy,butitwillbesubjecttoincome

taxes.

AccountingRulesRegardingtheChangeinTaxPolicy6.AccordingtotheNewYorkTimes,asaresultofthe2003MMAtaxfreesubsidies,AT&Tsaw

itsobligationsforretireebenefitsdeclineby$1.6billion.

7.Thenewprovisionswillrequirecompaniesthattakethesubsidytorecalculatetheirretiree

healthcareliabilitiestoreflectthelossofthetaxdeduction.AT&Thasannouncedthatitwill

take

a

one

time

$1

billion

charge

to

account

for

the

tax

change.

8.Taxaccountingrequirescompaniestoreporttheimpactoftaxlawchangesinthequarterin

whichthechangeisenacted.Thechangewasenactedearlierthismonthandthequarterends

March31.Thus,newsmediaarereportingonanumberofcompaniesthataretakingthe

charge.AT&Tisamongthem.

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ProtectionsforRetirees1.CWAhasnegotiatedagreementswithourmajortelecommunicationscompaniesthat

protectretireebenefitsthroughthetermoftheagreement.Employerswillnotbeableto

changethesebenefitsoutsidethecollectivebargainingprocess.

2.The

health

care

reform

legislation

also

changed

the

Medicare

Part

D

prescription

drug

benefits,closingthesocalleddoughnuthole.Currently,oncedrugcostsexceed$2,830

Medicarewillpaynomoretowardcoverageuntiltotaloutofpocketspendingreaches$4,550,

thentheywillbegintopay95percentofthecost.Thehealthcarereformbillwillclosesthe

gap(doughnuthole)completelyby2020,withincrementalimprovementsbeginning

immediately.

3.ForemployersandtrustfundsthatcoverpreMedicareandMedicareeligibleretirees,costs

willbeeasedbya$5billionreinsuranceprogramestablishedforretireesbetweentheagesof

55through64.Thatprogramwillreimburseplansforpartofthecostofhighcostcases

80percentofthecostofclaimswhichareatleast$15,000andupto$90,000.Thiswill

providesignificant

cost

relief

in

the

short

term.

4.Someelementsofhealthcarereformwillbendthecostcurve,helpingtomoderatethe

costofretireebenefits.Evengreatersavingsareestimatediftheprivatesectoradoptsthe

samemeasures.Forexample,provisionstoreducehospitalreadmissionsareestimatedtosave

5percentfrompreventedreadmissions.AccountableCareOrganizationshavebeenshownto

improvecostefficiencyby10to15percent.Thesecostsavingswillflowthroughtoour

negotiatedretireebenefits.

FutureProspectsA

study

commissioned

by

the

Business

Roundtable

estimated

that

key

legislated

reforms

could

reducetheperemployeecostofcoveragebymorethan$3,000overthenext10years.Many

ofthereformsincludedinthestudyhavebeenenactedbythenewlegislation,forexample,

individualaccountability,transparencyanddisseminationofthecostandqualityinformation,

measurestoreducevariationinpracticepatterns,andinvestmentsininformationtechnology.

Overtime,thereductioninthevalueoftheretireedrugsubsidywillbeoffsetbytheselong

termsavingsmeasures.

NextSteps1.CWAwillengagewithgroupstothoughtfullyanalyzetheimpactofthechangesoveralland

workwith

Congress

to

remedy

any

unintended

consequences.

2.CWAwillengageemployersabouttheimpactofthehealthcarelegislationonour

negotiatedplansandonourmembers.

3.AT&ThasaffirmedthatnochangeswillbeimplementedforCWAretireespriortothe

expirationofourcurrentagreementsin2012.