The Cost of Health Care in the Construction Manufacturing Industry

Health care is on the tip of the American public’s tongue, and you’d be hard pressed to find someone who doesn’t like at least one part of the new legislation — and that includes those in the construction industry. Large companies across the board, including John Deere and Caterpillar, are speculating that they will lose as much as $100 million due to a lost drug-benefit tax break in the health care overhaul.

Health care reform is affecting the entire country. It’s already rippling big waves into the manufacturing sector. Companies and contractors need to explore how it will change their business structure.

According to a report by National Public Radio, when congress subsidized drug coverage, the government covered 28 percent of a company’s costs for a plan and the company could deduct the entire cost from its taxes. “It was like the government giving you money to pay your mortgage and also letting you write off the mortgage interest,” the report states. Thanks to the new health care reform, companies still get the subsidy, but not the tax deduction — bringing in $4.5 billion to the government at the expense of large companies like Cat, John Deere and even AT&T.

Caterpillar filed a Form 8-K on March 24, which stated , “As a result of the Patient Protection and Affordable Care Act (H.R. 3590) signed into law on March 23, 2010, beginning in 2011 the tax deduction available to Caterpillar Inc. will be reduced to the extent its drug expenses are reimbursed under the Medicare Part D retiree drug subsidy (RDS) program.” The form goes on to report that “as retiree healthcare liabilities and related tax impacts are already reflected in Caterpillar’s financial statements, the change will result in a charge to Caterpillar’s earnings in the first quarter of 2010 of approximately $100 million after tax.”

Similarly, a John Deere press release stated that the Patient Protection and Affordable Care Act will adversely impact its expenses for fiscal 2010. The company’s expenses are expected to be about $150 million higher on an after-tax basis, primarily in the second quarter. This impact was not included in the 2010 outlook for net income attributable to Deere & Co. of approximately $1.3 billion disclosed in the company’s first-quarter earnings report on Feb. 17th.

The bill has been signed into law, but that isn’t stopping opponents of the legislation. There’s still plenty of time until the law goes into effect for amending, repealing and other political maneuvers. CE is tuned in to keep you informed.