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To "Gregory Folley" <Folley-Gregory_S@cat.com> cc "Kathryn Himes" <HIMES_KATHRYN_S@cat.com>, "Jerry Duggan" <Duggan_Jerry_W@cat.com> bee Subject Fw: Healthcare Reform
Retain Untlt 02126/2011

Caterpllar: Confidential Green

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<Paul.Gaeto@cat.com> 11/20/200908:01 AM

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Greg: 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 provision. 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. Paul 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 Bill: 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

CONFIDENTIAL BUSINESS INFORMATION

CAT_WAXMAN_000360

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 would. 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. Regards, Jerry Duggan Healthcare Benefits Human Services Division (309) 675-4676 AB4360

CONFIDENTIAL BUSINESS INFORMATION

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