The proposed Senate healthcare reform bill will eliminate a tax deduction that businesses receive when they provide prescription drug coverage for retirees. Both businesses and labor groups oppose the elimination of the deduction, which provides a 28 percent subsidy for employers that provide the prescription drug coverage for retirees.
The Joint Committee on Taxation has said that the elimination of the tax deduction will raise $5.4 billion over the next decade. However, employers argue that businesses would drop the benefits to retirees. As a result of the dropped benefits, more and more retirees would enroll in the Medicare Part D program to get prescription drug coverage. As a result, the federal government would have to manage the greater healthcare expense to the Medicare system. Likewise, unions are concerned that the elimination of the deduction will make their benefits unstable.
The tax subsidy was established by Congress initially as a way for employers to keep the retiree prescription drugs coverage benefit when it launched the Medicare Part D program. James Klein, president of the American Benefits Council, said that the subsidy was intended to save the federal government money, so the move to drop the subsidy in order to raise money is “peculiar to say the least.”
Medicare beneficiaries should take time now to review their prescription drug coverage options, as well as their Medigap plans, in general. Many changes are going to be taking effect in 2010, including the potential changes to Medicare Part D and employer subsidies for prescription drug coverage. Medicare beneficiaries have until December 31 to make changes to their Medigap insurance plan that will take effect in 2010.

Wiley Long is founder and president of Medigap Advisors, and is passionate about helping people navigate the confusing waters of Medicare. He is the author of The Medicare Playbook: Designing Your Successful Health Coverage Strategy, a clear and simple explanation so you can make the most of your Medicare coverage.