AT&T Joins in Health Charges
 

Who do you suppose is going to pay in the end?


By DAVID REILLY, ELLEN E. SCHULTZ And RON WINSLOW

AT&T Inc. said it would take a $1 billion charge against earnings tied to the federal health-care overhaul, joining a number of other companies in reporting an impact from the bill signed into law this week.

The charges relate to prescription-drug benefits for retirees. Companies that provide this benefit, as AT&T does, receive a federal subsidy, plus they can deduct the value of this subsidy from their taxes. The health overhaul cancels the deductibility of the subsidy.

It is for that reason that companies are taking a charge against earnings. They "have a stream of tax benefits that they are losing way out into the future," said Roland McDevitt, director of health-care research at benefits consultant Towers Watson.

On Friday, 3M Co. joined AT&T in saying it would take a first-quarter charge, in 3M's case of $85 million to $90 million. Deere & Co., Caterpillar Inc. and AK Steel Holding Corp. also said they were taking such charges.

AT&T's is much larger than the others' because it has far more current and future retirees, and a large number of them are unionized, with guaranteed benefits.

The charges are "noncash," meaning companies don't have to write a check. But ultimately their tax bills will be higher given the change in tax treatment of the drug-benefit subsidy.

The charges are related to a 2003 law providing a prescription-drug benefit under Medicare. At the time it was adopted, some companies were threatening to drop drug coverage for their retirees, since this would now be available through Medicare. Congress voted them a 28% tax-free subsidy for continuing to provide coverage to retirees eligible for Medicare.

The subsidies caused the cost of companies' obligations for retiree benefits to decline. AT&T, for example, saw its obligation drop by $1.6 billion at the time.

The cost of providing retiree prescription-drug coverage was already tax-deductible before the 2003 law. After that law was signed, companies remained able to deduct the cost of providing the benefit, including the portion paid for by the subsidy.

The current health-care overhaul doesn't eliminate the subsidy, nor make it taxable. What it changes is that companies will no longer be able to deduct the portion of the drug benefit paid for by the subsidy.

Since companies had created an asset based on the expectation they would be getting these deductions over the lives of their current and future retirees, they say they need to take a charge reflecting the fall in the asset's value.

Accounting rules say the charges, which affect what are called "deferred tax assets," must be taken in the quarter in which a tax-law change is enacted. The first quarter ends Wednesday. Companies wouldn't have to announce the charges before they actually report their first-quarter earnings over the next several weeks. However, if they viewed the charges as material, they might feel they needed to inform shareholders immediately.

The one-time charges, running into the hundreds of millions of dollars, could add to the ongoing debate about the health overhaul's impact, even though the charges are noncash.

Mr. Zion of Credit Suisse estimated in a report this week that companies in the S&P 500 index will rack up a combined $4.5 billion charge due to the change in the value of the tax asset.
—Roger Cheng contributed to this article.
http://online.wsj.com/article/SB20001424052748704100604575145981713658608.html

This is why no health benefits should be tied to employment.

Am I reading the part I highlighted correctly ? They made out twice it seems. First getting a subsidy, then second, being able to claim that subsidy for tax purposes ? I know I can be dense, but that's what it reads like to me..

Exactly right. AT&T and every other employer with health benefits just passes the cost on to the customer. Let everybody get their own insurance. I just bet most of the people in favor of this bill had their insurance paid by their employer's customers.

"The current health-care overhaul doesn't eliminate the subsidy, nor make it taxable. What it changes is that companies will no longer be able to deduct the portion of the drug benefit paid for by the subsidy."

You read it right. They got the subsidy and then were able to write if off as an expense. WTF is that?

Oh the inhumanity. That's like having a tax free income and then claiming it as an deductable expense. Sounds like the government closed a huge corporate loophole enableing them to double dip. Sounds like good reform to me.

But see it's defecit neutral !! (Ya right you believe that I got a bridge and some great land in Florida).
Oh corporations are not part of the governments balance sheet, oops AiG, GM ........

Of course too lets figure the tax receipts this will cost, and someone pays this, companies aren't gonna just eat the cost.

And this will really help the employment situation here

This is the 6th or 7th large company so far, CAT was first.

Raise the cost of product or service to pay the offset. Or let go some employees.

Actually, it sounds like they were given a "bribe" in 2003 to continue to provide drug benefits to their union retirees and the new bill has taken it away. I assume they will now get rid of that benefit in their next union contract.

The good news is that mandatory health coverage will make unions even less relevant and level the playing field for non-union workers. It also means that part of my phone bill will not be going to pay these union benefits.

To say it again, I would prefer a single-payer system supported by progressive taxes on individuals and not their employers. Then there are no costs to pass on, but rather huge savings.

I don't say this because my health benefits would be subsidized by you. In fact, I would expect people in my income bracket to pay more than we do today.

I tend to agree, but that is not politically feasible (yet). You saw how much whining came from the unwashed masses who didn't (and still don't) understand this (very modest) reform bill. Every nut-case in america would be waving a photo of Castro (or Hitler, if they were too stoned to pay attention during history class) if you tried to pass a single payer system. It won't happen until these crazes (and the politicians who still pander to them) are gone.

I'll be on Medicare before anything gets done, but I'll try very hard to not say, "I got mine, screw you."

Well so far Rush Limbaugh, Skid Row, and AustinCE have indicated there getting ready to leave. Obviously they don't believe in our system of government and have a better place in mind. Good for them, good riddance and lots of luck in their new country.

I'll believe it when I see it. As they say in texas; "Big hat, no cows."

^^^ I may be wrong, but your use of the word; "there" instead of "they're," may seem to indicate your level of reading/writing skills. At no point have I "indicated I'm getting ready to leave." That is a falsehood.

As I too am somewhat close to crossing that threshold - I tend to agree........it will be difficult.