Caterpillar: Health Bill Would Cost Company $100M

I came across this a couple of hours ago and discovered that similar articles were being run by a number of other major news sources. To see a comprehensive listing, click here. I felt that since a major U.S. manufacturer was taking a position on the Health Care Bill it was certainly newsworthy and the article by Bob Tita of DOW JONES NEWSWIRE was worth sharing.

By Bob Tita


CHICAGO (Dow Jones)–Caterpillar Inc. (CAT) said the proposed overhaul of the U.S. health-care system could increase its costs by $100 million, signaling disquiet in corporate America about the controversial plan.

The heavy-equipment maker’s concerns are focused on the potential loss of subsidies to prescription drug costs it covers for retired employees.

In a letter Thursday to House Speaker Nancy Pelosi (D., Calif.) and House Republican Leader John Boehner (R., Ohio), Caterpillar urged lawmakers to vote against the plan “because of the substantial cost burdens it would place on our shareholders, employees and retirees.”

The company said the potential extra costs would primarily come from provisions to tax the federal subsidies the company now receives for providing prescription-drug benefits to retirees and their spouses.

Since the Medicare drug program was enacted in 2003, Caterpillar and more than 3,500 companies that already provided drug benefits for retirees have received tax-free subsidies from the federal government as an incentive to maintain their drug programs.

The subsidies average $665 per person covered under a company-sponsored prescription program, according to benefits consultant Towers Watson, which recently completed a study on the health-care legislation’s effects.

Watson Towers estimates federal taxes on the drug subsidies would amount to $233 per person receiving drug benefits under such programs.

About 40,000 Caterpillar retirees receive company-sponsored drug benefits, which are more generous than Medicare’s drug plan, in which recipients are required to pay some out-of-pocket expenses.

Proponents of subjecting the drug benefit subsidies to federal income taxes argue that Caterpillar and other companies are already able to deduct health care benefit costs, including the drug program, from their taxes as a business expense.

The Peoria, Ill., company also says it faces higher insurance costs from a requirement in the health-care legislation that would extend coverage for employees’ dependent adult children up to age up to age 26. The company currently covers adult dependents up to 25, but only if they are full-time students.

Caterpillar said this provision, along with eliminating the tax exemption on drug subsidies, would raise its health care costs by at least 20%, or more than $100 million, in the first year after the health-care overhaul program.

That big increase would largely be a noncash charge, stemming from adjustments to Caterpillar’s tax liability. Accounting rules require that the long-term tax costs be included on the company’s balance sheet at one time, even if the taxes paid annually on the subsidies are actually much less. Although the health-care legislation would be phased in over a number of years, the tax effects of the legislation would be felt in 2010 if the bill becomes law this year.

“From an accounting standpoint it hits right away,” said Roland McDevitt, director of health care research for Towers Watson. The tax charges also would count against companies’ earnings at a time when corporate profits remain fragile because of the weak economy.

McDevitt estimates that a company with 25,000 retirees on subsidized drug benefits could see its 2010 earnings reduced by $70 million.

Caterpillar and other companies have been lobbying to maintain the tax-free subsidies as an effective way for the federal government to hold down its costs for Medicare prescription drug coverage by keeping retirees enrolled in company-run programs. They predict that taxing the subsidies will cause companies to curtail drug benefit programs for retirees.

“We are disappointed that efforts at reform have not addressed the cost concerns we’ve raised throughout the year,” said the letter signed by Gregory Folley, vice president and chief human resources officer of Caterpillar.

Business executives have long complained that the options offered for covering 32 million uninsured would result in higher insurance costs and hinder economic growth. Opponents of the legislation have stepped up their attacks in recent days as the House moves closer toward a vote on the Senate version of the health-care legislation.

A letter Thursday to President Barack Obama and members of Congress signed by more than 130 economists predicted the legislation would discourage companies from hiring more workers and would cause reduced hours and wages for those already employed.

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