An association representing 300 large corporations urged President Barack Obama and Congress on Monday to repeal a provision of the health care overhaul that prompted AT&T, Caterpillar and other companies to announce substantial charges for the current quarter.
The association, the American Benefits Council, said the provision — which reduces the tax deductions for companies with drug coverage for their retired employees — would deal a significant blow to corporate profits and would discourage companies from hiring more workers.
AT&T announced last week that it was taking a $1 billion charge because of the provision. Deere & Co. announced a $150 million charge, Caterpillar a $100 million charge, and 3M a $90 million charge.
Many companies said they were taking these charges now, before the current quarter ended, to comply with accounting rules. But some corporate critics asserted that the companies’ rapid response to the health legislation was aimed at pressing the administration to repeal the provision.
James A. Klein, the president of the American Benefits Council, called the provision “a serious mistake that is having negative and unintended consequences.”
White House officials defended the provision, saying it was a deliberate effort to eliminate what they said was an unusually generous tax loophole.
They said the overall health care overhaul would save businesses more than $150 billion over the next decade by reducing health care inflation.
“We’re confident that the benefits are going to accrue and strengthen business’ bottom line,” said Linda Douglass, the communications director for the White House Health Reform Office.
When Congress and President George W. Bush enacted a prescription drug plan for seniors in 2003, the legislation encouraged companies to continue providing prescription coverage to retirees, instead of shifting retirees to Medicare Part D, by having the government give those companies large subsidies for each retiree — and also allowing them to deduct those subsidies from their income taxes.
Under the health care overhaul, the federal government will continue providing those subsidies — amounting to 28 percent of a drug plan’s costs — but companies will lose the tax break.
About 6.3 million retirees — an estimated two-thirds of them from the private sector — are covered by employer drug plans.