Employers continue to watch how new provisions of the Affordable Care Act (ACA) will potentially impact their businesses. While some of these impacts may not be felt for years to come, many employers have been bracing for a change that may affect their bottom line in 2013.
ACA eliminating tax deduction for retiree drug subsidies
Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, employers who sponsor group health plans that provide prescription drug benefits to their Medicare-eligible retirees have been able to receive a 28 percent tax-free retiree drug subsidy (RDS) from the federal government, plus deduct the subsidy from their corporate income tax.
However, as announced in 2010 when the ACA was signed into law, employers are no longer able to claim the deduction for RDS payments in 2013. The RDS subsidy is still available, but these payments are no longer tax-deductible.
What does this mean for employers?
Generally, the elimination of this deduction may increase the tax liability for employers and increase the overall cost of providing prescription drug coverage to Medicare-eligible retirees. For this reason, employers have been exploring other cost-effective group retiree drug coverage options like Wellmark's Group MedicareBlueSM Rx plans.
Group Part D plans continue to be attractive coverage options. ACA mandates the closing of the Part D coverage gap (donut hole), through a variety of initiatives, including the Coverage Gap Discount Program.
What should employers do next?
If you are an employer receiving RDS payments, you've likely already analyzed how the elimination of the RDS tax deduction may impact the tax liability of your organization. But it's always valuable to review the costs of providing retiree prescription drug coverage and evaluate other options.
Contact your Wellmark representative for assistance or to learn more about alternative drug coverage options for your retirees.
Where can I get more information?
Wellmark is here to inform, lead, assist and support you through all of the ACA's changes as you make your decisions about your group health plan. For more information about the elimination of the RDS tax deduction, call your Wellmark representative.
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