With more than 3,500 companies now getting the tax break as an incentive to keep providing coverage, others are almost certain to announce similar cost increases in the weeks ahead as they sort out the impact of the change.

Figuring out what it will mean for retirees will take longer, but analysts said as many as 2 million could lose the prescription drug coverage provided by their former employers, leaving them to enroll in Medicares program.

White House spokesman Robert Gibbs defended the tax law change Thursday, saying the original provision allowing companies to deduct the federal subsidies from their taxable income was a “loophole” that will be closed by the health care overhaul.

For the government, the tax changes are expected to raise roughly $4.5 billion over the next decade to help pay for the health overhaul. Some of the savings would be negated by retirees enrolling in the Medicare plans.

“Youre increasing the incentive for companies to say We dont want to be in the health care business any more,” said James Gelfand, senior manager of health policy for the U.S. Chamber of Commerce, which fought the overhaul.

American industrial companies that are struggling to compete globally against companies with much lower labor costs are particularly likely to eventually drop retiree coverage, said Gene Imhoff, an accounting professor at the University of Michigan.

“Anything that they can use to justify pushing something away from the employees, pushing it back on the employees or the government, theyre going to do it,” Imhoff said. “Im not sure you can really blame them for trying to do this.”

Caterpillar spokesman Jim Dugan said the company is still studying the health care law and doesnt yet know what the full impact will be. But he acknowledged that benefit changes are possible.

“Obviously, theres greater cost pressures on us that could drive changes to plans, but we havent made any decisions on that,” Dugan said.

Spokesmen for Deere and Valero said it was to soon to say how the change would affect the benefits they offer retirees.

When Congress approved the Medicare prescription drug program in 2003, it included government incentives for employers to provide drug benefits to retirees so the public system wouldnt be overwhelmed. Employers that provide prescription drug benefits for retirees can receive subsidies covering 28 percent of eligible costs; those subsidies totaled $3.7 billion in 2008.

The health care law signed by President Barack Obama on Tuesday prohibits companies from writing off the subsidies starting in 2011, meaning they will no longer be able to deduct them from their taxable income.

For example, if a company spent $100 on benefits, including a $28 government subsidy, it could write off the full $100 on its taxes under the old rules. The new rules would allow the same company to write off only $72.

The follow-up health care bill to reshape parts of the overhaul would delay the changes until 2013.

As many as 1.5 million to 2 million retirees could lose the drug benefits provided by their former employer because of the tax changes, according to a study by the Moran Company, a health care consulting firm.

James Klein, president of the American Benefits Council, said between 6 million and 7 million retirees currently get the benefits. But the number of companies offering them has been dwindling for years.

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The estimate is up 4.2 percent from Fidelitys projection last year. The Boston-based financial services company has updated its estimate annually since 2002 as part of its business helping employers design workplace benefits programs.

The study is based on projections for a couple of 65-year-olds retiring this year with Medicare coverage. The estimate factors in the federal programs premiums, co-payments and deductibles, as well as out-of-pocket prescription costs. The study assumes no employer provided insurance in retirement, and a life expectancy of 85 for women and 82 for men.

The estimate has risen 56 percent from Fidelitys initial $160,000 projection in 2002. The average annual increase has been 5.7 percent, so this years 4.2 percent rise - from $240,000 last year to $250,000 - is modest.

But with broader inflation now near zero amid a recession, health care costs continue to rise faster than other expenses, said Sunit Patel, a senior vice president at Fidelity.

The findings illustrate the importance of factoring in health care alongside housing, food and other expenses in retirement planning.

“It turns out to be a surprise for many, and one of the largest expenses in retirement,” Patel said.

The increase in this years estimate was relatively small because a surge in patent expirations for brand-name drugs meant many cheaper generic versions reached the market, Patel said. That helped limit out-of-pocket prescription costs.

Fidelitys estimate doesnt factor in most dental services, or long-term care, such as costs from living in a nursing home. A 2008 study by Fidelity estimated a 65-year-old couple would need $85,000 on average to cover insurance costs for long-term care in retirement.

Thursdays study also didnt account for the health care overhaul that President Barack Obama signed into law Tuesday. Fidelity was updating its 2010 estimate before legislative details were clear, Patel said.

The laws focus is expanding access to people under age 65. But it also would benefit many retirees by gradually closing whats known as the “doughnut hole” coverage gap in the Medicare drug benefit. Seniors fall into that hole once they spend $2,830 per year. The legislation would begin narrowing the gap by providing a $250 rebate this year. The gap would be fully closed by 2020, when seniors would still be responsible for 25 percent of the cost of their medications until Medicares catastrophic coverage kicks in.

Patel said the gaps closure is likely to yield only a “very modest” reduction to Fidelitys $250,000 overall cost estimate.

The Employee Benefit Research Institute, an independent nonprofit, conducts similar research but, unlike Fidelity, doesnt focus on an average. Thats because there are so many variables that many retirees costs will end up far lower or higher than any average, said Paul Fronstin, EBRIs director of health research and education.

For example, EBRI estimated last year that a retired couple would need $416,000 for health care costs if their drug costs were far higher than average, in the 90th percentile. If that same couple lives longer than three-quarters of retirees, the estimate rises to $614,000.

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“A key element to these reforms is that options that werent available to people will become available now,” said DeAnn Friedholm of Consumers Union. The publishers of Consumer Reports supported Obamas effort.

Some questions and answers on the health care bill:

Q: When are the uninsured going to get coverage?

A: Most will have to wait until 2014.

Thats when the government begins providing tax credits to help people who cant otherwise afford to pay health insurance premiums. The aid will be available on a sliding scale to households making up to four times the federal poverty level, or about $88,000 for a family of four.

A four-person family making around $40,000 will pay only about 5 percent of its income. But the same size family making $80,000 will pay nearly 10 percent of its income. Medicaid will be expanded to cover people up to 133 percent of the poverty level, or about $29,300 for a family of four.

Starting that same year, health insurance companies would have to take all applicants. They could not deny coverage to people in poor health, or charge them higher premiums.

More than 30 million people will gain coverage, and by 2016 about 95 percent of eligible working-age adults and their families would have health insurance. Most would buy their coverage through health insurance exchanges, new state-based purchasing pools. Illegal immigrants wouldnt be able to participate.

Q: So after all the ruckus, nothing happens for another four years?

A: Not at all. There will be plenty of changes before the big push to expand coverage.

For example, the bill starts to close the gap in the Medicare prescription drug benefit right away. Seniors who fall into the dreaded “doughnut hole” gap in coverage will get a $250 rebate this year.

In a big change for middle-class families with kids in college, parents will get to keep adult children on their health plan until they turn 26.

Q: That might help kids moving from college to work. What are the requirements?

A: The main requirement for now is that adult children not be eligible for workplace insurance of their own.

The Senate bill originally also required them to be unmarried, but the House has voted to lift that restriction, and the Senate is expected to follow. (Grandkids, however, would not be eligible.)

To what degree adult children would have to be financially dependent on their parents remains to be clarified in regulations. However, congressional staffers involved in writing the legislation said lawmakers did not intend to require that parents have to support their kids to keep them on their coverage.

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To the ardent liberal, President Barack Obamas health care plan, passed by the House on Sunday night, is a shadow of what should have been, sapped by dispiriting downsizing and trade-offs.

To the loud foe on the right, it is a dreadful expansion of the nanny state.

To history, it is likely to be judged alongside the boldest acts of presidents and Congress in the pantheon of domestic affairs. Think of the guaranteed federal pensions of Social Security, socialized medicine for the old and poor, the civil rights remedies to inequality.

Change is coming, but in steps, not overnight. The major expansion of coverage to 32 million people - powered by subsidies, employer obligations, a mandate for most Americans to carry insurance, new places to buy it and rules barring insurance companies from turning sick people away - is four years out.

In contrast, on June 30, 1966, after a titanic struggle capped by the bill signing a year earlier, President Lyndon Johnson launched government health insurance for the elderly with three simple words, as if flicking a switch: “Medicare begins tomorrow.”

Obama practically needs a spreadsheet to tell people whats going on and when with the law he will sign after the Senate takes final action this week.

Yet he and LBJ share a distinction: They are the only two presidents to succeed with a transcendent health care law.

“We rose above the weight of our politics,” Obama said late Sunday night in relishing the House victory on a 219-212 vote. “We proved that we are still a people capable of doing big things.”

You can be sure Obama, a student of history, is aware of how LBJ captured the moment when Medicare became law with his pen. That happened in Independence, Mo., in the presence of the very first American to sign up for the program: Harry Truman. The ex-president had ended a world war but could not achieve national health insurance in his time.

“Care for the sick, serenity for the fearful,” Johnson promised that day. “In this town, and a thousand other towns like it, there are men and women in pain who will now find ease.”

Said Truman: “I am glad to have lived this long.”

Why is this so hard? In part, because self-reliance and suspicion of a strong central government intruding into peoples lives are rooted in the founding of the republic, and still strong.

In 1854, President Franklin Pierce vetoed a national mental health bill on the basis that it would be unconstitutional to treat health as anything but a private matter that is none of the governments business.

Seventy-five years later, the American Medical Association denounced proposals for organized medical services as an “incitement to revolution” at the hands of “Medical Soviets.”

And that wasnt even about government-run health care. The AMAs fierce opposition to collectivism included objections to private health insurance, the norm today, and the pooling of doctors into what became health maintenance organizations decades later.

No wonder would-be health reformers were thwarted one generation after another even as they made deep imprints on the nation in other ways.

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Obama is trying to rally public support for the biggest changes to U.S. health care in 45 years in the face of unanimous Republican opposition. He said his proposals show there are ways to pay for expanding insurance coverage to tens of millions of Americans without running up the federal budget deficit.

“So much of the money currently in our health-care system is being misspent,” he said. “If we can have a smarter health- care system, then yes, we can provide help to middle-class folks who need it and, at the same time, actually reduce the burden on taxpayers.”

The president earlier signed an order authorizing government agencies to use private auditors to uncover fraudulent claims and payment errors, a step the White House says may save $2 billion over three years. The order, along with pending legislation, will help keep the Medicare health program for the elderly solvent, Obama said.

Time to Vote

Obama urged Congress to take action, saying “its time to vote” on the health legislation. “Now is the time, now is the moment,” he said. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid yesterday both said the Democrats were making progress.

At stake is a plan that would give insurers such as Indianapolis-based WellPoint Inc. millions of new customers while requiring them to accept all who seek coverage and imposing new regulations on the industry. Americans would also have to buy insurance, with new purchasing exchanges and government aid to help them afford coverage.

WellPoints chief financial officer said the bill will force healthy people out of the market while doing nothing to control medical costs. Those, he said, are just the conditions that led the insurer to plan a rate increase in California, a move that became a rallying point for Democrats seeking the overhaul.

California “is a preview of what health-care reform is going to look like,” CFO Wayne DeVeydt said yesterday at an investor conference in Boston.

Reconciliation Measure

Obamas plan relies mostly on a Senate bill passed in December. Hes pressing House Democrats to approve that bill while passing another measure that would make negotiated changes. The changes would be passed under a budget procedure called reconciliation that would require a simple majority vote in the Democratic-controlled, 100-member Senate, rather than the 60 that often is needed for major legislation.

All 41 Senate Republicans signed a letter to Reid, a Nevada Democrat, saying they would vote as a bloc to uphold any provisions the Senate parliamentarian rules out of order because they arent related to the budget.

Arcane Process

“The misuse of the arcane process of reconciliation — a process intended for deficit reduction — to enact substantive policy changes is an undemocratic disservice to our people and to the Senates institutional role,” the senators wrote.

Senator Tom Coburn, an Oklahoma Republican, also posed the threat of legal challenges unless Obama signs the Senate bill into law before reconciliation measures are considered. House Democrats want to pass the changes in tandem with the Senate bill because they dont like many of its provisions.

“I see a court case being filed immediately if in fact that happens,” Coburn said. “You cannot reconcile something that is not law.”

Pelosi, a California Democrat, told reporters that House and Senate Democrats are “very close” to producing the package of reconciliation changes.

Differences are being “resolved because we have defined a solution and because we have no more time to think about it,” Pelosi said. “The decision time is here and thats it.”

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Thats why she decided to become a plaintiff in a lawsuit against Californias largest for-profit health insurer on behalf of policyholders who were allegedly pushed to take coverage with fewer benefits and higher deductibles.

In a lawsuit filed in Ventura Superior Court on Monday, Anthem Blue Cross is accused of violating a California law requiring health insurers to offer new, comparable coverage or minimize premium increases when they close a policy.

According to the lawsuit, plaintiffs Mary Feller and Randy Freed received similar form letters from the Woodland Hills-based insurer, stating their policies were closed and they could “switch to any Anthem Blue Cross individual health plan with no underwriting required.”

The lawsuit alleges that the few plans Anthem would allow Feller and Freed to switch into had higher premiums, higher deductibles, less coverage, or a combination of those undesirable traits.

Anthem Blue Cross spokeswoman Peggy Hinz said the insurer hasnt yet reviewed the lawsuit, declining further comment.

The lawsuit seeks class action status and is being brought by Consumer Watchdog, a Santa Monica-based consumer advocacy group, on behalf of Feller and Freed.

When the practice was outlawed in 1993, legislative analysts called it a “death spiral” because rates inevitably increased until policyholders could no longer afford coverage. As the coverage pool shrank over time, rates went up and up.

“Its a very profitable practice, and what we know is the insurance industry is very focused on short-term returns,” said Jerry Flanagan, a health advocate for Consumer Watchdog.

The lawsuit comes on the heels of government scrutiny of a steep Anthem Blue Cross rate hike for roughly 700,000 individual policyholders in California. The hikes average 25 percent - some premiums will rise as much as 39 percent - but implementation of the hike has been delayed until May 1 while a state regulator investigates.

Anthem executives have blamed the current economic climate, flaws in the national health care system, high costs of health care and fewer young, healthy people holding onto insurance policies for the rate hikes.

The Obama administration has called Anthems hike a harbinger of rising premiums in its arguments for health care reform.

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The 10,000 yuan ($1,460) in life savings the couple brought to pay their costs may become an expense of the past after the Chinese government spends $125 billion to start a national health insurance system. The benefits will be felt beyond the sick as General Electric Co. and Philips Electronics NV compete to sell imaging equipment and household savings are freed up to buy clothes and cars.

More than 300 million Chinese are without health insurance, the World Bank says, and the remaining 1 billion have only partial coverage. In part to pay for those costs, Chinese save about one-quarter of their income each year and have accumulated as much as $5 trillion, said Stephen Green, chief China economist for Standard Chartered Bank Plc in Shanghai.

Unlocking those savings is key to Chinas plan to shift its economic drivers from exports and investment to domestic consumption after the global crisis and a 16 percent export decline in 2009 laid bare the countrys vulnerability to swings in external demand.

“If they want to broaden out the economy they have got to be serious about building the social safety net,” said Stephen Roach, Hong Kong-based Chairman of Morgan Stanley Asia and author of “The Next Asia,” in an interview. “Health care is absolutely critical in accomplishing that.”

Peoples Congress

The Politburo, Chinas top decision-making body, called for that transformation to be sped up this year, the official Xinhua News Agency reported after a meeting of the group chaired by President Hu Jintao. The Feb. 22 meeting discussed the report that Premier Wen Jiabao will deliver March 5 at the National Peoples Congress, in which the government will outline policy initiatives for 2010.

More spending also would appease Chinas trading partners, which are on the receiving end of a trade surplus that reached $196 billion last year, more than Malaysias gross domestic product.

In addition to GE Healthcare China and Philips Healthcare China, the $41 billion being spent to build 31,000 hospitals and equip them with diagnostic and imaging equipment may benefit Chinese companies. Among them: imaging manufacturer Mindray Medical International Ltd. and vaccine maker Sinovac Biotech Ltd.

Buying Stakes

Chinas focus on health care is spurring private deals. Eli Lilly & Co.s venture-capital arm paid almost $15 million last year for about 15 percent of privately held CITIC Pharmaceutical Ltd., a drug-distribution company.

Indianapolis-based Eli Lilly sees pharmaceutical distribution opportunities in the interior, where incomes are lower, as well as on the urban east coast, Darren Carroll, the companys vice-president for new ventures, said in a phone interview.

Chinas pharmaceuticals market, including nutritional products and consumer drugs, will more than double to $110 billion by 2015 from $44 billion in 2008, Credit Suisse AG estimated in a November 2009 report.

Device Makers

Vicky Chen, who manages the $80-million closed-end China Healthcare Partnership Fund under the auspices of Martin Currie Investment Ltd., favors equipment and device makers that sell to lower-cost health providers.

She has held Shenzhen-based Mindray, whose shares have risen 113 percent in the past 12 months, since the fund was launched in July 2008.

Chen on February 2 increased her stake in Beijing-based Sinovac, the first company to have its H1N1 vaccine approved in China, during a secondary share sale. Sinovac shares have risen 472 percent in the past 12 months. It and Mindray are listed in New York.

Chens fund was up 81.4 percent in the first 11 months of 2009, the most recent period available.

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The Obama administration has referenced Anthems rate proposal frequently in its arguments for greater federal authority over premiums. On Monday, President Barack Obama put forward a national health care plan that would give the Department of Health and Human Services the authority to deny or limit substantial premium increases or demand rebates for consumers.

The state legislative hearing is the first public examination of the rate proposal, which the insurer announced in November.

On Wednesday, a U.S. House of Representatives committee will question executives from Anthems parent company, WellPoint Inc. of Indianapolis, about its rate proposals.

The company has said it needs to increase premiums in part because younger, healthier people have been dropping health insurance coverage during the recession, leaving it with a pool of policyholders that is older and more dependent on health care services.

The latest increase would average 25 percent but could be as high as 39 percent for some customers who purchase individual policies. Anthems remaining 7.3 million customers in California are covered by employer-sponsored plans and would not be affected, company spokeswoman Kristin Binns said.

Individual insurance plans cover about 30 percent of Californians, according to the state Department of Insurance. That is rising as more people lose employer-sponsored coverage.

After extensive media reports and pressure from state regulators, Anthem agreed earlier this month to postpone the start of the increase from March 1 to May 1.

In a Feb. 8 letter to Anthem president Leslie Margolin, U.S. Health and Human Services Secretary Kathleen Sebelius said she was disturbed by the proposed increase and called for the insurer to justify the need for such a significant hike.

Last week, her agency released a report condemning Anthems recent actions. In it, Sebelius noted that profits for the countrys 10 largest insurance companies rose 250 percent between 2000 and 2009 - 10 times faster than inflation.

WellPoint reported a $2.7 billion profit in the last quarter of 2009, according to the report.

The state insurance department lacks legal authority to stop rate increases but can complicate insurers practices in other ways. The office has hired a consulting firm to review Anthems rate proposal and determine whether it complies with a 2006 California law requiring insurers to spend 70 cents of every premium dollar on medical care.

Poizner said Anthems 57 percent market share in California is evidence that state residents lack sufficient choice when it comes to choosing health insurance providers.

Deputy Insurance Commissioner David Link is scheduled to take part in Tuesdays hearing before the Assembly Health Committee. He will be joined by Margolin and numerous health insurance experts and consumer advocates.

The hearing is intended to help the Legislature develop policies to protect Californians from rate hikes like those proposed by Anthem, said the committees chairman, state Assemblyman Dave Jones, D-Sacramento.

“A 39 percent rate increase on top of prior increases is simply unconscionable,” he said in a statement Monday.

Anthem Blue Cross did not respond to a request for comment on the Tuesday committee hearing.

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Brock works for Bon Secours Health Systems in Maryland as vice president for advocacy and government relations, and spent 10 years working on health issues for the W.K. Kellogg Foundation. She joins Benjamin Todd Jealous, the 37-year-old CEO of the NAACP, as leader of the 500,000-member organization.

Brock said she plans to focus on pushing for policy changes to eliminate inequality, strengthening the relationship between the national and local NAACP branches and holding people accountable.

“Its not always what someone is doing to us, but what we are doing for ourselves,” Brock said in an interview.

The departure of Bond, 70, after 10 years as board chairman marks a turning point for the National Association for the Advancement of Colored Pepole.

Bond came of age in the segregated South, helped found the Student Non-Violent Coordinating Committee and was on the front lines of the protests that led to the nations landmark civil rights laws. He is a symbol and icon of “the movement,” which was a defining experience for older generations.

In recent years the NAACP has endured criticism that it is old and out of touch. Then Bond brought in Jealous, then 34, as the NAACPs youngest CEO, and endorsed Brocks bid for board chairman.

The selection of young leaders “is deliberate, but its also fortuitous,” Bond said. “We are lucky to have had this confluence of a young CEO and a young chair. I dont think we plotted and planned that in 2010 the stars would align this way.”

Jealous said he belongs to a generation “whose greatest accomplishments are in front of them … who are even more hungry for change.”

Bond said the board asked him to run for another one-year term, but he declined.

“Frankly, this is the most difficult nonpaying job Ive ever had,” said Bond, who has served in the Georgia state legislature, is a member of several corporate boards and a professor at American University and the University of Virginia.

Brock was selected in a vote by the 64-person NAACP board. Her opponent was Rev. Wendell Anthony, leader of the NAACPs Detroit chapter, who withdrew Friday after he was not re-elected to his seat on the board.

She described health care as her passion and said the current reform debate hinges on one fundamental question.

“Am I my brothers and my sisters keeper?” Brock asked. “Thats the question that weve got to ask our legislators. Are we really, really concerned about our neighbors, and about their health, and their childrens health?”

While acknowledging the need to “retool our front line” and develop young civil rights activists, Brock said the wisdom of the older generation is still needed.

“If it were not for that aging membership, the NAACP would not be who it is and what it is today,” she said.

Many conservatives question the need for an NAACP and say that an association for the advancement of white people would be considered racist.

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“I hope they come in a spirit of good faith,” Obama said today in his weekly address on the radio and the Internet. “I dont want to see this meeting turn into political theater, with each side simply reciting talking points and trying to score political points.”

In the Republican address, Representative Dave Camp of Michigan said that the health-care debate needs to be reset to the beginning and he criticized Democratic proposals that are being negotiated ahead of time in secret.

“If the starting point for this summit is more of the same backroom deals and partisan bills, then this meeting will likely be a charade,” Camp said.

Obama said he is considering Republican ideas as he crafts his own proposal, such as letting health insurance be sold across state lines and allowing small businesses to join together to purchase insurance policies for the employees.

“I hope Democrats and Republicans can come together next week around these and other ideas,” Obama said.

Republican Ideas

Camp said the Republican proposals include letting states implement their own reforms and a crackdown on medical malpractice lawsuits.

“Republicans remain ready to discuss these ideas with President Obama and move forward in a bipartisan way to lower health care costs,” he said. “But Americans health care is way too important to risk on a rushed backroom deal that puts federal bureaucrats in charge of your personal health-care decisions.”

On Feb. 9 Obama singled out for criticism proposed insurance premium increases by a California subsidiary of Indianapolis-based WellPoint Inc. that the company later delayed.

In his address today, he said customers of Anthem Blue Cross of California recently “opened up their mailboxes to find a letter” and that the “news inside was jaw-dropping.” The company, he said, wanted to raise premiums “by an average of 25 percent, with about a quarter of folks likely to see their rates go up anywhere from 35 to 39 percent.”

He expressed concern about similar rate hikes that either have been put into effect or are proposed in Michigan, Kansas and Maine.

“The bottom line is that the status quo is good for the insurance industry and bad for America,” he said.

Obama called the health-care debate a test of the governments ability to solve problems, and said it has gone on long enough.

“Americans are understandably despairing about whether partisanship and the undue influence of special interests in Washington will make it impossible for us to deal with the big challenges that face our country,” he said.

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