March 26th, 2010
11:41 AM ET
5 years ago

Companies predict new cost from health plan

Washington (CNN) - It hasn't even been a week since President Barack Obama signed sweeping health care legislation, but several companies already have warned shareholders they expect to take a hit.

Manufacturer John Deere announced Thursday that it expected the company's expenses to be about $150 million higher than last year. That came a day after Caterpillar predicted a new cost of $100 million, and two days after AK Steel predicted a charge of $31 million.

"Having an additional cost like this is not great timing," said Caterpillar spokesman Jim Dugan.

As a deep recession spread last year, revenue for the world's largest manufacturer of construction equipment declined 37 percent over the previous year, and 19,000 workers were laid off worldwide. But in the last three months, the company has recalled 750 or so employees, and projected higher sales in 2010.


Caterpillar made a net profit in 2009 of $895 million out of $32.4 billion in sales, according to its Web site, while John Deere pocketed $873.5 million out of $23.1 billion in sales. AK Steel, however, suffered a $74.6 million loss on $4 billion in income.

Most of the new costs will come in a reduction in subsidies about 1,400 companies receive for providing drug coverage to their retirees. In an effort to raise several billion dollars for implementing the health care package, the law makes those subsidies taxable, just like income.

The subsidies began in 2003, when a prescription drug benefit was added to Medicare. To prevent companies that provided retirees with private drug benefits from dumping them into the new Medicare program, the government began providing an incentive. Giving companies a subsidy to continue their private coverage of retirees costs the government around half as much as covering those same retirees directly with Medicare's drug plan.

The subsidy averages $665 per retiree, according to Roland McDevitt, who has studied the issue for human resources consultants Towers Watson. The new tax would lower that by $233 per retiree. Because each company will have to make up the difference up front for the duration of each retiree's retirement, McDevitt estimates the change will cost companies $2,800 per retiree this year.

"That's a pretty big impact it will have on them," said McDevitt.

White House spokesman Robert Gibbs defended the provision Thursday, saying the change really amounted to the closing of a loophole, because companies were not paying taxes on either the subsidy or on whatever money they spent on the retiree drug plans.

Under the change, he said, "instead of there being a subsidy and what amounts to two deductions, there's now a subsidy and one deduction."

Under the new law, the companies still receive a tax deduction for what they spend on the coverage.

Defenders of the new tax also point out that before 2003, companies got no subsidy at all, so they're still coming out ahead if they get a taxed subsidy.

The new law does not have an immediate effect on retirees and their benefits. But ten top companies, including Caterpillar, John Deere, Verizon, Xerox, Boeing, and Met Life, warned Congress in December that over the long term, it would.

"Taxing the subsidy means that more companies will eliminate or reduce the coverage," they warned, "and more retirees will shift to Medicare ... which will create more cost for both the government and the retirees."


Filed under: Health care
soundoff (108 Responses)
  1. honest abe

    listen to all these whiners... if we give our employees good health plans and hire more people – we wont make as much of a profit... boo hoo boo hoo! gotta be kidding me.

    March 26, 2010 11:48 am at 11:48 am |
  2. Obama Victim

    hello lay-offs..............wonder how that hope and change is working for those people??

    March 26, 2010 11:53 am at 11:53 am |
  3. Be Patient

    Thank you U.S. Supreme Court. I can see which companies will be buying a congressman or senator in November.

    March 26, 2010 11:55 am at 11:55 am |
  4. Fair is Fair

    I guess this is just among the first early discovery of an "unintended consequence" of this wretched legislation.

    Guess how companies are going to recoup these expenses? That's right... layoffs and stagnant wages.

    But Obama said companies were, quote, "going to save 3000% on their premiums, so they can give you a raise".

    Keep following this idiot off a cliff, liberal sheep.

    March 26, 2010 11:55 am at 11:55 am |
  5. JS007

    When will these stupid, greedy CEOs realize that they should actually be pushing for a single-payer system that provides government health insurance for all and costs way less than the current system? A public health system would be the biggest cost cut for business ever! The problem is that CEOs don't want their PERSONAL taxes to go up and are willing to subject their companies to the ridiculously expensive private insurance system in order to keep taxes on rich individuals unsustainably low.

    March 26, 2010 11:56 am at 11:56 am |
  6. Linda

    Providing health coverage for a company's workers is just the cost of doing business.

    March 26, 2010 11:57 am at 11:57 am |
  7. Linda

    Caterpillar and Deere raked in almost $900 million last year. And they're crying about losing a subsidy that is really just closing a loophole they shouldn't have been enjoying anyway?

    March 26, 2010 11:59 am at 11:59 am |
  8. An Independent

    Shareholders may take a "hit" but the people that do the work that create the profit will be able to keep doing the work and creating the profit.

    March 26, 2010 12:01 pm at 12:01 pm |
  9. Lynda/Minnesota

    Big business has been trying to push ALL employee health care expenses onto the government for years now. Ironic that these same businesses spent the past year using their paid lobbyists to work against a public option or single payer system.

    This is nothing more than big business smoke and mirrors. In fact, many of these same companies have already begun to eliminate health insurance benefits for retiree's althogether.

    Millions in profit, and they're still crying and whinning and stamping their feet.

    March 26, 2010 12:02 pm at 12:02 pm |
  10. Barbara Independent in NY

    Just like I don't trust anything Wall Street has to say, I don't trust anything big companies have to say. They're all about the bottom line. Too many companies have shipped our jobs out of the country. These companies don't even care if Americans have jobs. I don't trust what they say.

    March 26, 2010 12:03 pm at 12:03 pm |
  11. ATL Guy

    If you add up the amount of these subsidies, Bush and company basically gave away billions to these companies. And we wonder why we have such a big deficit. How many other special deals like this do we have with these companies? This is corporate welfare at its worst.

    March 26, 2010 12:08 pm at 12:08 pm |
  12. felicia

    Sowhat, caterpillar don't like President Obama anyway, they don't know how they're profits gonna turn out. Cnn you people are a bunch of hateful losers. I can't stand cnn

    March 26, 2010 12:09 pm at 12:09 pm |
  13. Chuck in CSG

    Gotta love that change, eh Dems?

    March 26, 2010 12:09 pm at 12:09 pm |
  14. Liberalism is a Mental Disorder

    And you fools called us names for telling you that it will not bring down costs and the true COST would be LOST jobs....Foolish liberals – they never learn!

    March 26, 2010 12:12 pm at 12:12 pm |
  15. Victim of GOP Taliban

    So what? These are huge companies with plenty of profits. The lease they can do is shave off .0005 percent of 1% off their profit margin to take care of their OWN employees. Quit being such greedy jerks.

    March 26, 2010 12:12 pm at 12:12 pm |
  16. Todd

    Doesn't sound like this will help much with Obama's erstwhile number 1 priority......jobs?

    March 26, 2010 12:13 pm at 12:13 pm |
  17. Voted4HealthCare

    These corporate subsidies are already costing the taxpayer, since the GOP passed their irresponsible drug bill in 2003 withOUT a way to pay for it. The CBO estimated the GOP bill would raise deficits by $394 billion, and they still voted for it.

    In contrast, the current health bill is actually paid for to reduce deficits as reported by the CBO, and the health care bill provides immediate 35% tax credits for small businesses.

    March 26, 2010 12:14 pm at 12:14 pm |
  18. Claudia, Houston, Tx

    It was suggested that companies would save and make money if those longterm high cost employees who are eligible for retirement would make room for new hires who don't start off earning as much money. Additionally, the CEO's of these companies could look at cost cutting by reducing their ennormous salaries and bonues before crying foul.

    March 26, 2010 12:17 pm at 12:17 pm |
  19. Liberalism is a Mental Disorder

    Shocker~!

    March 26, 2010 12:17 pm at 12:17 pm |
  20. Liberal wingnut

    Reform could have taken place without expanding the gov't

    March 26, 2010 12:18 pm at 12:18 pm |
  21. MsDp

    These jerks were laying off employees anyway and they did the same thing after the stimulus. I bet if they would give any new implementation some time and stop jumping to to negative conclusions, then the economy just may improve. I think it's rediculous to object to everything without any real merits!! Every one knows that their exports are up....

    March 26, 2010 12:18 pm at 12:18 pm |
  22. Mark

    Well of course businesses will have increase costs because of the Health Care Bill/Law. We all knew that. We also know that businesses aren’t going to say “that’s okay”. Businesses are going to do what they need to do to survive: make cuts in jobs. Oh yea, aren’t jobs what we need most? But that’s okay because those without jobs will still be covered under the new law. And don’t worry the rest of us tax payers will flip the bill from that newly unemployed worker. Thanks Congress for setting the table for further unemployment and an increase tax burden on all of us. But that’s okay because we have a Health Care bill. What a bunch of fools!

    March 26, 2010 12:18 pm at 12:18 pm |
  23. Randolph Carter, I'm no expert but...

    Hmmm... Had they passed single-payer, not-for-profit universal healthcare, like every other developed nation on the planet has, this wouldn't even be an issue. But our corporate sellout president and congress critters would never do something so sensible because that would be, you know, socialism! And socialism is bad. Have a nice day!

    P.S. Ayn Rand was a second rate romance novelist and a sociopath.

    March 26, 2010 12:19 pm at 12:19 pm |
  24. Cindy PA

    There is a simple fix, layoff those employees that are registered Democrats or any employee that voted for the Democratic Party first.

    March 26, 2010 12:20 pm at 12:20 pm |
  25. SocialismBad

    "Taxing the subsidy means that more companies will eliminate or reduce the coverage," they warned, "and more retirees will shift to Medicare ... which will create more cost for both the government and the retirees."
    ====================================================
    WAY TO GO DEMOCRATS!! MORE people WILL be dumped into an already BANKRUPT government program. Or maybe the companies wil increase their prices to make them more uncompetitive? Not likely. Or maybe they will reduce costs (aka JOBS!) to make up the costs. Far more likely. DemocRATS are just plain DANGEROUS to this country, and JOBS!

    March 26, 2010 12:21 pm at 12:21 pm |
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