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.

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.

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1985 300D Turbo
"Evolution is God's way of giving upgrades" Francis Collins

Great point!! Why do we have to get insurance through employers?? If it were based on individual people making the purchases themselves costs would go way down. We buy every other kind of insurance ourselves.... why not health insurance?

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Current:
2014 VW Tiguan SEL 4Motion 43,000 miles.

2016 Hyundai Santa Fe Sport (wife's).

Past:
2006 Jetta TDI 135,970 miles. Sold Nov. '13.
1995 E-320 Special Edition. 220,200 miles. Sold Sept. '07.
1987 190-E 16 valve. 153,000 miles. Sold Feb. '06.
1980 300-D 225,000 miles. Donated to the National Kidney Foundation.
1980 240-D manual, 297,500 miles. Totaled by inattentive driver.

I've bought my own health insurance in the past, it's avaiable if you want to buy it. Most employers offer it as a benifit to attract quality employees. The last time I bought my own, the premiums were around $15k per year for a familly of four. My wife's plan, through her employer, is only a fraction of the cost because it's subsidized.

Waxman wants to speak to the executives about the costs they are quoting since many reports state that the companies are planning on taking the charges this year and that this is how much it is going to cost the companies this year.

The change that is going to cost the companies so much this year does not take effect until 2013. Waxman wants to know what charges they are talking about.

Bohener has said the companies should not have to answer to any committie. Waxman said that is up to them, but if they are going to take a charge such as this now when they are not entitled to it until 2013 he would like to know why.

How exactly does a company "pass the cost onto the customer" when they just took a big writedown ? Take an accounting class. Costs can be passed on if competition is doing the same thing. Does Verizon have a big population of union retirees going back to DOBs in the 1910's? getting fat pensions? I think not. So, ATT, sure, they can raise prices, but I can get a phone somewhere else now. My guess is they will mitigate this by doing just what they originally threatened to do, move their retirees onto the Bush Plan.

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..

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Sharing my partner's 2012 Forte 5dr SX til I find my next 123 or 126..
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Do I miss being a service advisor ???

"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.

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Question Authority before it Questions you.

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.

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KLK, MCSE

1990 500SL

I was always taught to respect my elders.
I don't have to respect too many people anymore.

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

Correct.

Count on both happening.

For examples:
Just yesterday, Caterpillar and Deere and Company both reported increases of $100,000,000.00 million dollars in increased healthcare-related costs each.....and that is for just the remainder of this year - 2010!!!

In the months ahead as Capitalism continues crumbling, and unemployment rises - I predict that Obama and the 50.5% of Congress that voted government medicine in will proclaim that Capitalism doesn't work. I told you so here.

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'06 E320 CDI
'17 Corvette Stingray Vert

This thread is hilarious. Here we have the righties blatantly defending corporate welfare. Boo hoo, I'm all broke up over these guys and their customers having to pay more instead of ripping off the taxpayer. Sniff, sniff, get me a hanky! Poor old Caterpiller should be getting $100,000,000 from the taxpayer, those poor, poor corporations! How dare Obama take it away and give it to sick people!

Ah, excuse me, but you missed the "retirees" part. That is who this applies too. Perhaps they could just put them on Medicare like everyone else?

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.