GPO-CRECB-1987-Pt14-1-3.Pdf
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18684 EXTENSIONS OF REMARKS July 1, 1987 EXTENSIONS OF REMARKS INTRODUCTION OF THE RE Unlike pensions which have legal protec Finally, VRHP's could have another pro TIREE HEALTH PROTECTION tions for retirees, the retirees of LTV were left found effect. VRHP's could provide the engine ACT OF 1987 holding the bag for their health coverage. to get this Nation's evolving long-term care in The LTV Corp. retirees sought and received surance market going. relief from the Congress. The Congress re Until now, health insurers have been reluc HON. ROD CHANDLER quired that the company maintain retiree tant to develop long-term care coverage be OF WASHINGTON health coverage, at least temporarily. cause it has had to be sold on a retail basis IN THE HOUSE OF REPRESENTATIVES It is not appropriate for the Congress to individual by individual. assume such a role every time a firm gets into Employer participation has been missing in Wednesday, July 1, 1987 trouble. the long-term care area. So, employer groups Mr. CHANDLER. Mr. Speaker, I rise today VRHP's would not help LTV or its retirees. have not been open to insurers for long-term to introduce the Retiree Health Protection Act But, VRHP's could forestall comparable prob care coverage. of 1987, H.R. 2860. The co-author of this leg lems for other retirees and their former em The prefunding vehicle provided by VRHP's islation is my distinguished colleague from ployers. VRHP's would enable employers to may give employers the incentive to offer Alabama, Representative RONNIE FLIPPO. I ap prefund for future obligations, thereby preserv long-term care benefits, just as the tax exclu preciate his guidance in developing this signifi ing those funds for the use of the retirees. sion for health benefits adopted in the Tax Act cant and timely measure. Second, recent research indicates that over of 1954 became the driving motivation for em I also am gratified that Mr. FLIPPO and I are 90 percent of the Nation's largest firms are ployees to persuade their employers to offer joined in sponsoring the bill with our fellow obligated to provide health coverage for retir health coverage. Ways and Means Committee members, ees. A significant portion of smaller compa There is no question that the risk of long nies have comparable obligations; 25 million Messrs. DUNCAN, ARCHER, DONNELLY, GRADl term care costs is a spector which greatly American workers look forward to health cov SON, DAUB, GREGG, and BROWN. concerns the elderly. Many older Americans erage at retirement, and over 6 million Ameri H.R. 2860 provides incentives for employers do not realize that Medicare does not protect cans are now covered by postretirement to create voluntary retiree health plans them against the cost of expended nursing health benefits. [VRHP's] for the purpose of prefunding retiree home or home health care. A survey by the These are significant figures. health and long-term coverage. VRHP's would Corporate liability for these benefits is American Association of Retired Persons indi be tax exempt for employers while providing almost totally unfunded. Estimates of the li cates that a significant percentage of elderly protections for retiree health benefits. ability of firms for these benefits range from Americans believe Medicare covers long-term care as well as the costs of physician and WHY VRHP'S NOW $125 billion to $2 trillion. Any list of fortune This Chamber should view skeptically any 500 companies likely would show liabilities in hospital services. proposal to add new tax exemptions to the In the hundreds of millions of dollars. The eco It became apparent to me in considering ternal Revenue Code. In the wake of the 1986 nomic implications of this liability are clear as the Medicare catastrophic coverage proposal tax reform legislation-the effort by President the American population continues to age. in the Ways and Means Committee that na Reagan and the Congress to simplify the tax Additionally, the courts generally have acted tional policies to encourage private long-term system-why adopt new tax-favored activities to affirm corporate responsibilities for retiree care coverage are essential. However, the re for employers through VRHP's? With a cata health benefits. The courts have given em sources for such coverage are not available in strophic budget deficit challenging in Con ployers little latitude to refine or reduce prom the context of Medicare. The question then gress-as we continue to mortgage the fu ised benefits to retirees. becomes how we can promote coverage tures of our children-why further contribute To emphasize further the financial extent of which will reduce the risk of draining family re to the deficit by reducing Federal revenues to the issue, the Financial Accounting Standards sources or force the elderly to improverish promote VRHP's? Board [FASS] changed its reporting instruc themselves simply to afford a nursing home My answer to these questions is, quite tions for retiree health .coverage liability in bed. simply, the Retiree Health Protection Act of 1984. Firms now are required to recognize For families who work all their lives there 1987 is necessary legislation. Despite serious current costs of postretirement benefits in a has to be a better way. Insurance protection concerns about tax policy and the deficit, it is footnote to their annual reports. for long-term care makes sense. The Federal time for VRHP's. FASS currently is considering the more far employees health benefit plan is adopting To ignore VRHP's is to ignore the issues reaching action of elevating obligations for re such coverage. The private sector should raised by the liability of this Nation's employ tiree health benefits to a full-blown liability on follow suit-and VRHP's may make that possi ers for retiree health benefits. This liability has corporate financial statements. This modifica ble. far-reaching economic and social implications tion in FASS rules could alter the face of the WHAT IS A VRHP AND HOW WILL IT WORK? which demand the immediate attention of the American business scene. The Board is not Under the bill, employers would have the Congress. considering this modification lightly, but it ap option to create VRHP's in order to prefund What are the critical factors which point to pears they realize that the corporate obliga retiree health and long-term care benefits. the need for action? tion for health coverage of retirees can be ig Contributions to VRHP's would be tax deducti First, in 1986 the LTV Corp. filed for chapter nored no longer. ble and only employers would be allowed to 11 . The firm moved to cancel health coverage The Federal Government should recognize contribute to the account. The interest accu for its 78,000 retirees. An apparent motivation the implications of this liability-and the mulated in each account would not be subject for the corporation to reorganize through FASB's likely response-for our Nation's to Federal taxation. Employers would contrib bankruptcy was to cut operating costs-par economy and our retired citizens. National ute the amount necessary to fund the partici ticularly health benefit costs. policy should promote corporate responsibility. pants' future benefits, but annual contributions LTV retirees had no protection. The compa VRHP's would help stabilize this potentially could not exceed the lower of $1,500 or 25 ny had no prefunded account to cover retiree volatile situation. percent of the employee's income. However, health coverage. It had provided health bene There may be a cost to VRHP's. But, to the limit would increase annually to compen fits on a pay-as-you-go basis. And, the com avoid this cost would exacerbate the concerns sate for the growth in health care costs. pany lacked sufficient cash flow to maintain its of employers, employees, and the economy The VRHP accounts would have no cash obligations. as a whole. value for employee participants. The accounts • This "bullet" symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor. Matter set in this typeface indicates words inserted or appended, rather than spoken, by a Member of the House on the floor. July 1, 1987 EXTENSIONS OF REMARKS 18685 would, however, provide assurance at retire benefits for their employees. The insurance in to the beneficiaries, and included in the em ment that a plan would be available to fund dustry also is interested in prefunding as a ployee's gross income. Portions of the ac health care coverage. Employees would be means to increase employee interest in fi count which are pledged or assigned <i.e., as vested at 100 percent after 5 years of employ nancing group long-term care coverage for collateral) also shall be treated as distribut ed and included in the employee's gross ment within a firm or on a 3- to 7 -year transi employees and retirees. Both employers and income. <In cases where VRHP assets are in tional schedule. insurers have argued for the reinstatement of cluded in gross income, other than by virtue Once vested, the employee could take his the tax status of voluntary employee benefit of a pledge or assignment of account funds, or her VRHP account to new employers who associations [VEBA's] as a means to accom only that portion of the account in which also fund VRHP's. At retirement the employee plish these goals. the employee is vested will be included in would receive coverage from the employer Prior to modifications of the tax rules effect the employee's gross income.) who currently maintains the employee's ing VEBA's in the Deficit Reduction Act of If the VRHP was determined to be non VRHP.