Corporate Tax Bill To Change How Employers Can Reduce Health Benefits for Employees

The corporate tax bill (HR 4520) approved by the Senate this week contains a measure that would give large employers greater flexibility in how they cut costs for retired workers' health care benefits, the Wall Street Journal reports (Schultz, Wall Street Journal, 10/12). The Senate on Monday voted 69-17 to approve the bill following a House vote on Thursday, where lawmakers voted 280-141 in favor of the bill. President Bush likely will to sign the bill into law (California Healthline, 10/12).

Currently, large companies are allowed to withdraw surplus pension assets to pay for retirees' medical costs, but they are prohibited from making significant reductions in retirees' health benefits for five years after the transfer. While companies can reduce the number of retirees they cover by 10% in any one year or by 20% over five years, large employers must maintain the same per-capita health care cost -- meaning they must maintain the same spending amount per retiree -- for the five-year period.

Under the new tax bill, employers would not be required to maintain the per-capita cost. Instead of eliminating some retirees' health coverage under cost-cutting efforts, they would be able to cut overall benefit costs for all retirees. The overall cuts would be limited to the same amount that the companies would have saved by dropping coverage for some retirees.

According to the Journal, it is unclear how many employers would be affected by the law. Lucent Technologies, which last month eliminated health benefits for 10% of covered retirees and dependents, "lobbied forcefully for the change in the law," the Journal reports.

A Lucent spokesperson said in a statement, "Once this law goes into effect, on Jan. 1, 2005, we will not have to make such difficult choices about who receives coverage. Rather, we will be able to distribute the increased costs of health care across the entire management retiree population."

However, members of the Lucent Retirees Organization said in an e-mail to lawmakers, "It is simply unfair to allow companies who have already received the tax and other financial benefits of the pension asset transfers to renege on their commitment to maintain retiree benefits -- a commitment which was a condition of the initial transfer" (Wall Street Journal, 10/14).