March 26th, 2010
11:41 AM ET
8 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. Tom

    These increased costs are due to removing the unfunded provisions from the Medicare Part D program that the GOP pushed through under Bush.

    Those benefits were UNFUNDED and were blowing a hole in the Federal Deficit.

    This new law FIXES that drag on our Federal Budget.

    You can't have it both ways: claiming we need to worry about the deficit, then start trashing Obama and team for cleaning up the mess left behind from tha last group in power.

    March 26, 2010 01:12 pm at 1:12 pm |
  2. Ferret out the BS

    Hmmmm... after hearing all the B.S. about the size of govt increasing with health care reform, this article seem to refudiate that argument or at least this particular item and I'm pretty sure there's plenty more. Now we're hearing all the whinning from companies about their costs even though they can claim this as a cost for doing business and get a tax benefit! The B.S. never stops.

    March 26, 2010 01:21 pm at 1:21 pm |
  3. Pragmatic

    Which is why so many wanted the "single payer plan" .... but nope! In an attempt to be bipartisan (republican definition of "100% our way only) this bill was not all it could be.

    and who knew how long these companies would be offering health benefits anyway? IBM certainly changed their retirement benefits almost a decade ago ... and it wasn't pretty!

    March 26, 2010 01:24 pm at 1:24 pm |
  4. 8 Years of King George II and now the Landed Gentry Scream “Let Them Eat Cake” to the Unemployed and Uninsured Serfs!

    The real outrage in this story is NOT about 2 companies making smaller profits, but WHY has the middle class working Americans been subsidizing these two companies 250 million dollars a year for the last 7 years???

    By my calculations that has been 1.75 BILLION tax payer dollars that went to JUST 2 companies in this time frame as 'profits".

    That means these 2 companies have "earned" almost 2 billion bucks in tax payer "subsidies".

    One day some of the low information voters will catch on to this fact, the cons only care about the stockholders of these 2 companies NOT the average American.

    Way to spin it CNN, are you vying for Fox-Lite?

    I suppose we should expect you to view it from the "big business" viewpoint.

    March 26, 2010 01:26 pm at 1:26 pm |
  5. Jacqueline Blakely

    I am a teacher and I am fortunate enough to have decent health care. However, last week I suffered a severe reaction to my blood pressure medicine and ended up in the hospital. The lady next to me was worried because she had just found out that she needed dialysis and she had no health care. Her children were talking about dropping out of school to try and find work. The Republicans’ just don't get it. While many of us are not loud, ignorant, racist, or violent, doesn't mean that we are not out here in very large numbers supporting this health care law. The presidential election obviously didn't teach you what the masses really want. I guess we will have to show you in November when our actions will speak louder than your words!

    Jacqueline Blakely

    March 26, 2010 01:26 pm at 1:26 pm |
  6. robert bailey

    why is it that a company can always find a way to take something from their employee's, but can always find the money to take over another company or buy it out, or give unreal bonuses to the executives and boards members?

    March 26, 2010 01:30 pm at 1:30 pm |
  7. Dave, the Truthteller

    Hopefully, only the dimwits that voted Obama in lose their job.

    March 26, 2010 01:31 pm at 1:31 pm |
  8. Four and The Door

    Wait until they see how much faster Insurance Companies raise rates to comply with ObamaCare regulations. It will be much higher than they expect now.

    Unemployment will go up and health care quality will go down.
    The economy will take a huge hit from passage of ObamaCare just when we don't need another drag.

    March 26, 2010 01:33 pm at 1:33 pm |
  9. Yas

    Oh Boo Hooo....maybe now Corporate CEO will only get $15 million a year instead of $16 Million...GET A LIFE

    March 26, 2010 01:34 pm at 1:34 pm |
  10. AJ

    And the sky will fall in I'm sure...

    March 26, 2010 01:34 pm at 1:34 pm |
  11. Truth-Bomb Thrower

    ......which means LESS JOBS.

    We are getting EXACTLY what we deserve.

    March 26, 2010 01:42 pm at 1:42 pm |
  12. usualone

    Does that mean they have not been giving their employees insurance or inadequate insurance?

    March 26, 2010 01:43 pm at 1:43 pm |
  13. J.P.

    Can you say Duh?

    Only people who are economically illiterate and who have never opened, started, run or managed a business could actually believe this thing is going to be an overall positive on the economy.

    March 26, 2010 01:43 pm at 1:43 pm |
  14. Aggressive Progressive

    That's pretty lame coming from the two companies that probably benefited most from all the construction jobs created by government stimulus money. Insure your workers and stop flying around in private jets.

    March 26, 2010 01:44 pm at 1:44 pm |
  15. anotherGDlefty

    CAT made 895 million in PROFIT last year while dumping 19,000 workers worldwide. Now things are so horrible under Obama, they are calling back workers........

    If the stay the same, which they won't, they say they are growing sales, they would still be clearing the same amount of PROFIT if not more.

    Now comes these dire warnings from CAT & JD about added costs which the GOP is pouncing on. They aren't added costs, they are losing subsidies, yes, government subsidies. You know, what the right is calling socialism if a democrat proposes it.

    Is Jim Dugans boss a republican ? I'll guess yes.

    How long can CAT survive ONLY making 895 million in profit per year on 32 billion in sales? Poor guys........

    March 26, 2010 01:49 pm at 1:49 pm |
  16. Jake

    Smart move during worst recession,Cat can increase cost to offset increased HC cost and protect stock holders, then manufacter from China can take Cat's business.NOW we have even more out of work due to HC cost;however,Obama will be happy because that means more unemployment and thus more dependant on the entitlements of government.The socialism just never ends like this,the dream of Obama.

    March 26, 2010 01:51 pm at 1:51 pm |
  17. Republicans Are The American Taliban

    Why didn't the Taliban members of the Senate offer any amendments to prohibit death panels? Maybe because they now admit it's all been a big lie...

    March 26, 2010 02:01 pm at 2:01 pm |
  18. Connie in Tennessee

    What are these companies whining about? They offer insurance to their employees and will be able to do so in the future. It should be cheaper as they will not have to absorb the cost of unisured people.

    March 26, 2010 02:02 pm at 2:02 pm |
  19. 60's survivor

    I never trust numbers these days because everyone knows how to manipulate them to prove THEIR point.

    March 26, 2010 02:05 pm at 2:05 pm |
  20. Dean

    Lets do the math here Caterpillar made a net profit in 2009 of $895 million minus the 100 million for additional healthcare cost = 795 Million. Gee are supposed to feel sorry for them ? tell the stockholders to quit worrying about short term profits and focus on the big picture.

    March 26, 2010 02:07 pm at 2:07 pm |
  21. Ruth

    Come on now!!!The people and companies who have this negative attitude have no idea what is in the new health care bill. I have heard people say stupid things -when ask have you read the new bill, they say NO. They get their information from Fox news and Rush Limbaugh. I am appauled at how ignorant the american public has become. Learn to read people and do a little research.

    March 26, 2010 02:19 pm at 2:19 pm |
  22. BB

    What a bunch of BS.
    These business owners having been living the high life.
    Outsourcing so many american jobs and making a ton of profit.
    Now, they are whining, complaining and carrying on with "The sky is falling"... "oh, No".....These people have their nerve! What a joke.
    Scare tactics...people are not going to buy it, all they're doing is providing the Klan party with more talking points, since the ones they currently have don't seem to be working for them.

    March 26, 2010 02:20 pm at 2:20 pm |
  23. Indy

    Now lets hear from some companies that do not pay Republicans

    March 26, 2010 02:23 pm at 2:23 pm |
  24. JDD

    Count me among those who have noticed the steady stream of stories saved for after last weekend's vote – stories that have begun to mention one after another the tip-of-the-iceberg downsides to the new Healthcare Law.

    Try this thought-experiment on for size: Over the next 10 years, companies hiring less. Less people working. Less income tax collected to pay for expanded government. Less "rich" people to draw from. Still think we're going to be able to pay for this move?

    _We can't just keep printing money._

    The ironic truth will be that no-one – not those currently with insurance, and not those currently without, are going to have insurance the way they think they're going to have insurance. I do not think that we are actually going to get what many people in this Administration and otherwise have promised us we're going to get.

    When you spend what you don't have, you do not draw the poor up. You draw both the poor and the not-poor down.

    What a difference in history would have been made with a $960B jobs bill. What a _tragic loss of opportunity._

    March 26, 2010 02:24 pm at 2:24 pm |
  25. normajean

    I'm no mathematician, but these figures don't make sense to me. Anyone else have a point of view?

    March 26, 2010 02:30 pm at 2:30 pm |
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