U.S. Steel Reduces Future Retiree Health Benefit Obligations Under New Medicare Law

Officials for Pittsburgh-based U.S. Steel have announced that the company has reduced future obligations for retiree health benefits by $450 million for 2003 as a result of the new Medicare law (HR 1), the Wall Street Journal reports (Francis/Schultz, Wall Street Journal, 2/26). A provision in the law, included to encourage companies to maintain retiree prescription drug coverage, calls for the federal government in 2006 to begin to provide subsidies to companies to cover 28% of the cost of prescription drugs that exceed $250 for each retiree; the companies can receive as much as $1,330 per retiree each year (California Healthline, 2/3). According to an annual report released by U.S. Steel, the company based a "significant" part of the $450 million reduction on the expectation that many retirees will enroll in the new Medicare prescription drug benefit -- scheduled to become available in 2006 -- and based the remainder of the reduction on expected federal subsidies for retired mine workers, who have a "more-generous benefits package," the Journal reports. Estimated future retiree health benefits obligations for U.S. Steel decreased by about 18% in 2003, from $3.2 billion to $2.7 billion, which contributed about $69 million in income for the year. Companies can reduce their retiree health benefits obligations for 2003 based on revisions to Medicare scheduled to take effect in 2006 because of accounting rules that require companies to consider some benefits revisions over time. U.S. Steel expects to benefit from the $450 million reduction over the next 12 to 13 years (Wall Street Journal, 2/26). Earlier this month, officials for auto parts manufacturer Delphi announced that the company expects retiree health benefits obligations to decrease by $500 million in 2004 as a result of the Medicare law (California Healthline, 2/3). According to the Journal, such "disclosures provide shareholders of some of America's largest corporations a glimpse of the big savings and accounting benefits in store for other large companies with retiree health plans, as a result of the new Medicare law" (Wall Street Journal, 2/26).