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·PauI J. Gaeta· To "Gregory Folley" <Folley-Gregory_S@cat.


cc "Kathryn Himes" <>, "Jerry
11/20/200908:01 AM Duggan" <>
Subject Fw: Healthcare Reform

Caterpllar: Confidential Green Retain Untlt 02126/2011



Please see Jerry's note below summarizing the impact on Caterpillar of the
House version of the Healthcare Reform Bill. The most significant issue is
the elimination of the tax exemption on the Part D subsidy. Corporate
Accounting has advised that we would have a one-time write-off of a tax
deferred asset of up to $110 million when the legislation is passed. The
annual impact going forward would be around $8 million. The other versions
of healthcare reform legislation being circulated contain a similar

Katie and Jerry are putting together a letter for you to send to key
members of Congress. We will be reviewing it in the next few days. Please
let me know if you want to meet to discuss in advance.


Original Message
From: Jerry W. Duggan
Sent: 11/19/2009 04:19 PM CST
To: Kathryn Himes; Valerie Johnson
Cc: Paul Gaeto
SUbject: Healthcare Reform
Here is the latest update on impact of the various provisions of the House

Medicare Part D Subsidy

Current estimates are that if we lose the tax-free treatment, we will
need to take a one time tax charge at time of enactment that could be
as high as $llOm. Corporate Accounting is working with Towers Perrin
to more finely tune the estimate as it will be impacted by our
announcement related to retiree coordinator model. If we can delay
the implementation, would have a favorable impact from a cash flow
perspective but will not delay the time when we would need to
recognize the tax charge. We could also impact the amount of the tax
charge if we were to announce a plan design change related to our
retiree healthcare for the impacted population (bargained and
pre-1991 retirees) prior to the enactment. If we announced after the
enactment, we would still incur the tax charge.
Offer coverage for dependents through age 26
We could have as much as a $20m annual impact to Cat. We currently
have on average about 1,730 dependents for each age 14 - 18, while
only 600 on average for each age 19 - 26. Worst case scenario is
that with the bill, all eligible dependents 19 - 26 are added to our
plan (and we assume 1,730 eligible for each age 19-26). Based on our


history for cost per dependent in these age brackets, the additional
cost would be $20m annually. I think this is the worst case scenario
as I doubt all would be added but really have no way to know how many
Elimination of Lifetime Max
Towers Perrin is still finalizing the impact on the remeasurement but
current estimate is that elimination of our ability to enforce the
lifetime max on benefits for pre-1991 retirees would result in an
annual impact of approximately $5m.
Health Insurance for part-time
We currently have about 250 part-time employees. If we assume that
translates into a total of 600 members and assuming our average per
member per year healthcare cost of $4000, annual cost could be $2.4m
Prohibition against post-retirement reductions of retiree healthcare
Impact is unknown depending on final definition of the regs
Extension of COBRA
Still trying to estimate impact
Have confirmed that we do not have any plans for which an individual
premium is in excess of 27.5% of the COBRA rate.
Have confirmed that we do not have any plans for which a family premium
is in excess of 35% of the COBRA rate.

In the "payor play" mandate, guidance has been that the 8% would apply to
Box 1 W2 wages. In 2008, total Box 1 W2 wages (excluding Solar, Progress
Rail and Anchor Coupling) for Caterpillar were approximately $3.5b. 8% of
this total would be $280 million. Our current healthcare spend for active
employees is approx $305m so we would need to give serious consideration to
this option.

Please let me know any comments you have on the above summary.


Jerry Duggan
Healthcare Benefits
Human Services Division
(309) 675-4676 AB4360