A new health care regime is being ushered in the U.S. that is likely to cost a great deal to companies. It has been reported that the increase in the health care expenditure will not be offset by the small tax relief and would significantly change the costs for the companies.
In 2003, the Medicare program for prescription drug coverage had provided various incentives for providing drug benefits to retirees so that the public sector is not overburdened. The benefit provided by the company and the government subsidies were exempted from tax.
The new health care system does not allow deduction of subsidies from taxable income from 2011. Only the benefit provided by the company, after reducing the subsidy, will be exempt from tax.
According to Robert Gibbs, the White House spokesperson, this tax reform plugs an important loophole in the health care law, which allowed employers to subtract federal subsidies from taxable income. The new law will help the government generate a large amount of income from the increase in taxes. That money can be used for improving health care.
However, this law is predicted to have a definite negative impact on those who have retired. A large number of such people will no longer benefit from the prescription drug coverage that was given to them earlier by their employers. Their only option will now be Medicare coverage and this will reduce the revenue that the government would generate from a change in the tax regime.
The industry had lobbied hard against this reform and had sent several letters warning the government about the impact on the economy and the increase in health care costs that will follow because of the reform.
Already, the number of companies who are providing prescription drug coverage has been reducing and this number is bound to decrease further now. This would be detrimental for many retirees who prefer drug coverage provided by their former employers over the Medicare program. The drug coverage from the companies is more favourable and has lesser coverage loopholes than the Medicare program.
U.S. companies have to compete in the international market with third world companies who have the advantage of cheap labour. This law increases the costs of health care, which would reduce the competitiveness of the companies in the global market. This is the reason why these companies are complaining about the rising health care costs. It is yet to be seen how the federal government reacts to these concerns.