The American Benefits Council is urging the repeal of a healthcare reform provision that reduces the tax deductions for companieswith retiree drug coverage. Large companies have announced they expect to take an immediate substantial hit toaccount for smaller tax deductions in the future.

The hit on earnings will prompt employers to drop their retireedrug coverage, according to the American Benefits Council, and move retired employeesinto the Medicare Part D program.

The council claims the provision will also discourage new hires- another major hit to a nation reeling from millions of joblosses.

"For months, the American Benefits Council, along with severalemployers and labor unions, warned that the retiree drug subsidy tax in thehealth care legislation would impose an enormous hit on companyfinancial statements as soon as the bill was signed into law,"Council President James A. Kleinsaid in a statement.

The recent announcements by major U.S. companies have capturedWall Street's attention, while the Obama Administration fails toacknowledge their significance. Since the president has made clearthat job creation is his top priority, we urge the Administrationand Congress to remove this obstacle to economic recovery."

According to the New York Times, AT&T announced last weekthat it was taking a $1 billion charge because of the provision.Deere & Company announced a $150 million charge, Caterpillar a$100 million charge, and 3M a $90 million charge.

"Many companies said they were taking these charges now, beforethe current quarter ended, to comply with accounting rules. Butsome corporate critics asserted that the companies' rapid responseto the health legislation was aimed at pressing the administrationto repeal the provision," writes Times staff writer StevenGreenhouse.

U.S. Commerce Secretary Gary Locke says the actions ofthese companies are "premature and irresponsible" in advance ofgovernment regulations, but Klein asserts this statement is simplyincorrect.

"Accounting rules require these companies to reflect the hit ontheir financial statements before they announce first-quarterearnings," Klein said. "No regulations will or could be issued tochange that. Only a complete reversal of the provision will negatethese losses."

As many as 2 million could lose the prescription drug coverageprovided by their former employers, leaving them to enroll inMedicare's program, reports The Associated Press.

White House spokesman Robert Gibbs has defended the provision,saying the original provision that allowed companies to deduct thefederal subsidies from their taxable income was a "loophole" thatwill be closed.

But, according to the council, this provision of the MedicareModernization Act was "carefully crafted on bipartisan basis tosave the government money by making it possible for employers tocontinue sponsoring retiree drug coverage, rather than moveretirees into the Medicare Part D program."

"Over the next several days, many companies will be compelled toeither take a hit on their earnings or decide to move retirees intothe Medicare Part D program." Klein said. "As our recent researchreport clearly shows, as more retirees are moved from employerplans to Medicare Part D, government outlays will increase, and theshift from employer retiree drug subsidy programs to Medicare PartD is likely to be significant.

In the end, this so-called revenue raising provision mayactually cost the government money. A separate study, conducted by the Towers Watson consulting, reported thatunless companies change their benefit plans, the aggregateaccounting charge would be nearly $14 billion.

We understand the Obama Administration doesn't want a shadowcast over its historic legislative achievement, but the fact of thematter is, one-and-a-half to two million retirees will not be ableto keep the coverage they like. We urge the White House andCongress to reverse this provision of the law at the firstopportunity."