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Fact or fiction? Reform hurts retiree benefits

The insurance reform bill could end up hurting some retirees' drug coverage. fact-checks this claim — and more.

Claim: The insurance reform bill could end up hurting some retirees' drug coverage.

To raise revenue to pay for insuring the uninsured, both the House and the Senate reform bills would end a tax break for companies that provide prescription drug coverage for their retired workers. About 7 million retirees enjoy such benefits, which tend to be offered by larger companies and are more comprehensive than the Medicare prescription drug benefit plan. When Congress created the Medicare Part D drug benefit in 2003, it wanted to encourage private-sector firms to keep providing their own retiree drug benefits, so it decided to pay them a subsidy of about $700 a year per retiree. That subsidy costs about $8 billion a year. Congress made the subsidy tax deductible for the companies. The Joint Congressional Committee on Taxation estimates that ending this tax break would raise $5.4 billion from 2010 to 2019. Could this change have unintended consequences?

Fact or fiction?
Fact. A coalition of businesses and labor unions is urging Congress to keep the tax break. The American Benefits Council, which represents Fortune 500 firms, and the AFL-CIO labor union confederation both contend that ending the tax break would hurt retirees because it would lead employers to stop offering retiree drug benefits. "It would without a doubt lead to the loss of retiree drug coverage and put more people into the Medicare Part D program," said AFL-CIO official Gerald Shea. If that were to happen, taxpayers would need to pay for those retirees to get Medicare drug coverage. But as Democrats write their legislation they must go to extraordinary lengths to find sources of revenue. And a Democratic Senate Finance Committee aide said employers "shouldn't get a tax-free subsidy and an extra deduction, so that's what this provision eliminates."

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