AT&T Will Record A $1 Billion Expense Related To Health Care Law
The AT&T write-down is the largest reported so far. Caterpillar this week recorded a $100 million charge in the first quarter and Deere & Co. said it will report a one-time $150 million expense.
Among its many changes, the new health-care law eliminated a tax deduction that companies used to cut the cost of drug-benefit programs for retired workers. President Obama signed the massive health-care overhaul into law earlier this week in a big victory for ruling Democrats.
The health reform bill eliminated a subsidy for companies that operated as a double deduction. Companies such as John Deere and Caterpillar will face new costs up to $150 million, Ellen Schultz reports.
Yet companies that still offer retiree drug benefits, mostly older industrial concerns or those with unionized employees, say the end of the deduction could force them to alter their benefit plans. In other words, they might curtail or even cancel them.
“As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree health care benefits offered by the company,” AT&T said in a filing with the government on Friday.
An AT&T spokesman declined to comment further on the filing.
Earlier this week, Verizon Communications sent a letter to employees suggesting that changes to their health-care plans could be afoot. AT&T and Verizon are the two largest phone companies in the U.S. and include a substantial number of unionized workers.
Several million retirees are estimated to receive drug benefits from a few thousand companies. If those retirees were shifted to the federal Medicare program, the government would to pick up the expense. Whether savings from elimination of the subsidy would offset those higher Medicare costs is unclear.
Under the old law, companies received a federal subsidy worth up $1,330 per retiree if they provided former workers with drug-care benefits. At the same time, however, companies could deduct the value of the subsidy from their taxable income.
White House spokesman Robert Gibbs on Thursday said the government merely eliminated a tax loophole that effectively allowed a company to benefit twice from one law.
The AT&T announcement is sure to cause a ripple in Washington. Republicans have already assailed the administration for what they say are excessive costs saddled on business by the health-care law. The issue is sure to be part of their campaign against Democrats in the fall elections.
Democrats say the health-care law will become more popular over time and they point out that it also includes substantial new subsidies for business.
“There’s $10 billion in health-care reform for support for businesses with early retirees,” Gibbs said.
Jeffry Bartash is a reporter for MarketWatch in Washington.
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