When President Barack Obama signed his healthcare overhaul into law a year ago, some U.S. companies were quick to flag — and write down — the millions of dollars they stood to lose as a result of one aspect of the measure.
A year later, data from the Department of Health and Human Services shows the business community is one of the biggest beneficiaries of a separate provision of the overhaul, which provides billions of dollars in assistance to employers that maintain medical coverage for early retirees.
Hundreds of U.S. companies — including some that took writedowns last year that critics cited as proof of the new law’s burden on business — are participating in the program, which has paid out $530 million in the first seven months and is authorized to spend as much as $5 billion through 2014.
But while companies were quick to bemoan a potential headwind created by the overhaul, which eliminated a double subsidy they had enjoyed on certain drug expenses, no one seems keen to alert shareholders to the tailwind the companies are enjoying thanks to another aspect of the law.
The program, known as the Early Retiree Reinsurance Program, was designed to encourage health-plan sponsors — companies, labor unions, nonprofits and state and local governments — to continue to provide coverage to employees who retire before they qualify for Medicare, the government healthcare program for people aged 65 and over.
Without coverage from their former plans, experts say these people often cannot get insurance on their own because of their age and pre-existing conditions.
In the past, private employers were often willing to pay for such insurance as a carrot to encourage headcount reductions through attrition rather than layoffs.
But in recent years, fewer did because the annual costs per covered person began to rise to $20,000, $30,000 or more. As a result, “early retirees are among the groups hurt the most by the current health system,” said Nancy Metcalf at Consumer Reports, “and anything that helps them hold on to coverage until 2014 is helpful.”
Under the ERRP program, U.S. taxpayers now pay 80 percent of the outlays associated with higher-cost early retirees, those who cost their former employers between $15,000 and $90,000 a year in insurance premiums and other healthcare-related outlays.
The plan is scheduled to sunset in 2014, when the health insurance exchanges created by the Obama law are scheduled to open, providing affordable insurance to everyone. But in the four years ERRP is around, it can put as much as $240,000 per early retiree back in the pocket of a company.
“Every extra dollar that employers save on healthcare is a dollar they can spend on hiring new workers, innovating, and investing in their future,” said Richard Popper, a director at HHS’s Center for Consumer Information and Insurance Oversight.
So far, about one-fifth of the $530 million that was dispersed in the first seven months of the program has gone to private U.S. businesses. The actual amounts each company received are not yet available.
But the official list of companies participating in the program includes half the members of the Dow Jones industrial average.
Among the corporate beneficiaries: AT&T, Caterpillar Inc. and Deere & Co. — three companies that were part of the very public writedown wave that followed Obama’s signing of the law last year and the elimination of the double subsidy regarding retiree drug benefits.
That loophole, created in 2003 with the Medicare Modernization Act, allowed companies to receive a 28 percent subsidy from taxpayers to help cover the cost of prescription drugs for retirees — without counting the money as income.
And when they spent the money, the companies were allowed to turn around and get a deduction for it on their taxes — even though the money was a gift from taxpayers.
The Obama administration saw that as a double subsidy and eliminated it. So starting in 2013, U.S. companies will only be able to enjoy the subsidy once, by not having it count as income.
Reuters contacted AT&T, Caterpillar and Deere this week and asked them what they had told their shareholders about the boost their finances are getting from ERRP.
Ken Golden, a spokesman for Deere & Co., did not acknowledge the request. McCall Butler, a spokeswoman for AT&T, said the telecommunications giant had “no comment on this.”
Bridget Young, a spokeswoman for Caterpillar, said her company was “still in the process of analyzing our claims experience to better understand to what degree the reimbursement will affect Caterpillar. As such, it is too early for us to comment on how the reimbursement will be allocated.”
(Reporting by James Kelleher; Editing by Michele Gershberg and Matthew Lewis)