When Employers Slash Retiree Medical Spending

Retirees and employees of Kodak are likely to receive bad news in the near future. The firm filed for bankruptcy reorganization, and as part of that process it’s likely to decide eliminate their plans for retiree health care expenses. Companies don’t need to file for bankruptcy protection to do that, and many firms routinely reduced their support for retiree medical expenses over the years.

But when a firm files for bankruptcy, those hurt by elimination of retiree medical plans can take advantage of a special tax benefit. This helps them pay for new medical insurance, and some insurer offer plans geared to those who lost their retiree benefits and are using the tax benefit.

Still, retirees of companies in bankruptcy protection have an option unavailable to retirees of companies that are healthy but eliminate retiree health coverage anyway: the Health Coverage Tax Credit, or HCTC, a federally funded program administered by the Internal Revenue Service.

The credit pays a portion—currently 72.5%—of health-insurance premiums for retirees whose benefits have been reduced or eliminated in bankruptcy proceedings and whose pensions are taken over by the Pension Benefit Guaranty Corp., the federal insurer that assumes control of failed plans and pays the benefits.

The program will pay for comprehensive major medical coverage, including prescription drugs and dental and vision care, if they are included in that coverage.