House Hearing on Retiree Drug Subsidy Provision Canceled

By Staff Report

Apr. 15, 2010

A House panel hearing on a provision in the health care reform law that curbs a federal tax break for employers that provide prescription drug coverage to Medicare-eligible retirees has been canceled.

The hearing of the House Oversight and Investigation subcommittee had been scheduled for April 21 by the panel’s chairman, Rep. Bart Stupak, D-Michigan, and Rep. Henry Waxman, D-California, the chairman of the House Energy and Commerce Committee, last month after several corporations announced big charges against earnings for the change in the tax treatment of the prescription drug subsidies.

But a memorandum from Waxman and Stupak sent to members of the subcommittee Wednesday, April 14, said the hearing was being canceled at the request of several companies “to allow more time for key health care reform implementation decisions to be made before holding a hearing.”

Under a provision in a 2003 law that added a prescription drug benefit to the Medicare program, employers that provide coverage at least equal to Medicare Part D receive a tax-free subsidy equal to 28 percent of prescription drug costs within a certain range incurred by Medicare-eligible retirees. The provision was added to encourage employers to continue those programs.

Effective in 2013, however, employers no longer will be able to take a tax deduction for prescription drug expenses equal to the amount of the subsidy they receive. The subsidy itself will continue to be tax-free.

One of the first and biggest charges taken to date was by Dallas-based AT&T Inc., which late last month said it would take about a $1 billion charge against first-quarter earnings. AT&T also said in its filing with the Securities and Exchange Commission that as a result of the health care reform law, including the additional tax burden resulting from the retiree prescription drug provisions, it would evaluate prospective changes to its employee and retiree health care benefit plans.

Shortly after that filing, the Energy and Commerce Committee announced the hearing and asked the top executives of several companies taking the charges, including AT&T, to testify. The committee also said assertions made by each company that the health care law would increase costs “appear to conflict with independent analyses, which show that the new law will expand coverage and bring down costs.”

The memorandum also said the companies told committee staffers that some provisions, like the change in the tax treatment of the federal drug subsidy, will increase their costs.

On the other hand, “Others, like the coverage of the uninsured and the law’s delivery system reforms, have the potential to hold down employer health care costs,” the memorandum said.

The companies “are hopeful that the benefits of the new law will outweigh the costs. But they cannot quantify the benefits until the law is implemented,” the memorandum said.  

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail


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