AT&T Plans $1 Billion Charge For Health Care

NEW YORK — AT&T Inc. will take a $1 billion non-cash accounting charge in the first quarter because of the health care overhaul and may cut benefits it offers to current and retired workers.

The charge is the largest disclosed so far. Earlier this week, AK Steel Corp., Caterpillar Inc., Deere & Co. and Valero Energy announced similar accounting charges, saying the health care law that President Barack Obama signed Tuesday will raise their expenses. On Friday, 3M Co. said it will also take a charge of $85 million to $90 million.

All five are smaller than AT&T, and their combined charges are less than half of the $1 billion that AT&T is planning. The $1 billion is a third of AT&T's most recent quarterly earnings. In the fourth quarter of 2009, the company earned $3 billion on revenue of $30.9 billion.

AT&T said Friday that the charge reflects changes to how Medicare subsidies are taxed. Companies say the health care overhaul will require them to start paying taxes next year on a subsidy they receive for retiree drug coverage.

White House spokesman Robert Gibbs said Thursday that the tax law closed a loophole.

Under the 2003 Medicare prescription drug program, companies that provide prescription drug benefits for retirees have been able to receive subsidies covering 28 percent of eligible costs. But they could deduct the entire amount they spent on these drug benefits – including the subsidies – from their taxable income.

The new law allows companies to only deduct the 72 percent they spent.

AT&T also said Friday that it is looking into changing the health care benefits it offers because of the new law. Analysts say retirees could lose the prescription drug coverage provided by their former employers as a result of the overhaul.

Changes to benefits are unlikely to take effect immediately. Rather, the issue would most likely come up as part of contract negotiations between the company and unions representing its employees and retirees. AT&T is the largest private employer of union workers in the U.S.

Candice Johnson, spokeswoman for the Communications Workers of America, which represents more than 160,000 AT&T workers, said these employees have contracts in place until 2012. An agreement covering retirees also runs through 2012.

AT&T rival Verizon Communications Inc. was among 10 companies that sent a letter to congressional leaders in December warning that their costs would increase with the health care changes. Verizon spokesman Peter Thonis said the company had no comment.

Also on Friday, Reps. Henry Waxman, D-Calif., and Bart Stupak, D-Mich., said they are asking the CEOs of Caterpillar, Verizon, Deere and others to testify at an April 21 House subcommittee hearing on claims that the health care law could hurt their ability to provide health insurance to workers.

Shares in AT&T, which is based in Dallas, climbed 9 cents to close Friday at $26.24.

Comments

[Russ Kirk]

06:54 PM on 04/01/2010

Change can be painful. Social engineering always has unintended consistences.

[dporteraustin]

02:13 PM on 03/30/2010

If you’ve taken college level accounting and know a thing a two about these booking costs you would know what the news isn’t telling you.

The “costs” that these companies are “booking” are tax-free government subsidy payments that the companies receive to help these companies pay the cost of health care for their employees.

The health care reform has taken away these tax-free government subsidy payments to these companies.

It’s NOT that the companies are having to PAY OUT in cash the $1Billion or $150 Million or $31 Million, it’s that these companies are no longer getting government checks, they cannot “book” these checks as tax-free income anymore.

The checks issued to these companies from the government are really your tax dollars, so this reform is SAVING tax-payers money.

How can companies spin this with a straight face!

[jazzman99]

07:14 PM on 03/30/2010

In actuality, all that is going on is that they are reversing a huge benefit, which had been recorded as an asset, that they were given by Congress in 2003.

It is hard to feel sorry for them, but on the other hand this is not some loophole they had found. It was in the tax law and you can be sure something of this magnitude didn't just slip through back then. God knows what Congress was thinking (but that is not their long suit), but at least it has been corrected going forward.

I think Congressman Waxman may want to stand down, as what the companies have done is simply what good accounting, to say nothing of the SEC, demands. In 2003, they recorded a huge non-cash gain when the law changed and now that the law has been changed again they must write it down. That is Accounting 101.

A hearing will only highlight the silliness of a tax law that Congress passed and has been on the books for seven years!

[mar2371]

08:12 PM on 03/30/2010

The health care reform did not take away the tax free subsidies. The companies continue to receive them. Previously, the companies were able to take a tax deduction for the amount of the subsidy, in addition to receiving the subsidies tax free(double dipping). They were getting a tax deduction for the expenses that the government was reimbursing them for. Wish I could do that!

The new health care law takes away the tax deduction, and leaves the subsidy in place. So the charge is for the loss of the tax deduction.

[blueken]

11:17 AM on 03/30/2010

I have always been ticked off at the pension plans of big corporations and government employees. I work for a small business. I don't get a fixed income pension. I don't get retirement health care insurance. Not only do most of these employees make more than I do when working, some make more than I do in retirement. Cry me a river. A lot of them get 70% of thier previous income and social security. On top of that they get prescription and health insurance? Let them chip in a bit. Don't bother me a bit.

[mar2371]

10:50 PM on 03/29/2010

The more I learn about this subsidy, the more ticked off I get. The 2003 law provides a subsidy to AT&T of up to $1677 per retiree in 2010. The subsidy is 28% of qualifying prescription costs, INCLUDING prescription costs, deductibles and co-pays that were actually paid by the retiree. To top it off, the company then gets a tax deduction for the full value of the subsidy (double dipping).

So all these companies received money back from the government for part of the costs paid by the retirees, plus getting a tax deduction. What may come out from the hearings is exactly how much of that $1 billion dollar charge was actually due to getting a tax deduction on costs that the RETIREES paid for themselves. Maybe then we'll hear why Repubs think corporate welfare is okay, but health care for everyone isn't.

References:

($6300 - $310) * 28% = $1677 max subsidy per retiree in 2010
http://rds.cms.hhs.gov/reference_materials/threshold_limit.htm

"Allowable retiree costs means the subset of gross covered retiree plan-related prescription drug costs actually paid by the sponsor of the qualified retiree prescription drug plan or by (or on behalf of) a qualifying covered retiree under the plan."

from section 423.882 of Code of Federal Regulations

[Tuned IN]

07:45 PM on 03/29/2010

So I am thinking: Why is it okay with some that the government gives subsidies to corporations for benefits they provide to their employees, but not okay for the government to bypass the corporation and provide the same benefit directly to the employee/citizens?

[gbloodgood]

04:38 PM on 03/29/2010

From their 2009 annual report
# Net income attributable to AT&T exceeded $12.5 billion, while cash from operating activities reached $34.4 billion — the highest total in our history.

# We returned a record $9.7 billion to stockholders through dividends. And in December, we raised our quarterly dividend for the 26th consecutive year.

The poor babies, of course they have to they wouldn't only want to take in 11.5 billion
I mean, who can live on that?

[beerguy]

11:48 AM on 03/29/2010

Now that Obamacare is law, we now start to find out the real world costs of it. Waxman and Stupak are going to look like fools when they call all these CEO's to capital hill and complain to them about following SEC law. Going to love to see that

[Solja]

07:03 PM on 03/29/2010

Somehow you seem to believe that AT&T wasn't one of those lobbyist on Cap. Hill trying to stop health care from passing. I doubt anyone believes that but you.

[shellshock30]

09:48 AM on 03/29/2010

Sounds like AT&T wants to start a horrible trend to get the repubs back into power. Who else to pick on if not the retirees / seniors who:

1) Watch Faux Noose religiously

2) Most likely to vote in the next elections.

This is AT&T flexing it's corporate muscle to scare people about HC reform....nothing more. It's either this or start running ads for the repubs.

[shellshock30]

09:49 AM on 03/29/2010

This will also be plenty of ammo for the repubs to feed to the media...just watch.

[Solja]

07:05 PM on 03/29/2010

It's not old people they are laying off. It's young people. When is the last time an old phone co. operator contacted you? They are all in their 20's - 40's, and actually use their health care because they have babies (mostly). This group multiplies.

[WoolStreet]

09:47 AM on 03/29/2010

Cost Savings With Single Payer

Admin Overhead ---(exponentially less paperwork...AMA hates this)

Malpractice Insurance---the largest component of Malpractice suits disappears...future medical...single payer is its own tort reform

Workers Comp---basically becomes an unemployment program

Auto Insurance---the medical liability folds into the system

BUSINESS expenses would decrease dramatically.

Pension Plans become an IRA account.

We could then use the insurance paper pushers in actual medical care where they are needed for the Booming Baby Diaper generation.

[plumbergirl]

08:52 AM on 03/29/2010

What they need to do is get the money from the CEO, CFO, President, VP and Board members. Ops I forgot their just to greedy.

[CH0001]

02:31 AM on 03/29/2010

I see that the corporate giveaways continue unabated...

[Jannsmoor]

01:35 AM on 03/29/2010

The amount of economic and business ignorance on this thread is unbelievable. Just because AT&T can no longer write off a subsidy does not mean there will be layoffs. They will still make $11 Billion in profit. If they chose to lay people off, it will because there will be a profit in laying them off, not because some tax loophole was closed.
You people simply MUST learn to THINK, and stop listening to the radical right wing extremists.

[gbloodgood]

04:51 PM on 03/29/2010

Yes indeed. It isn't that they want to lay people off or reduce their benefits, its that their hands are tied - don't you see? How would their CEOs and owner's be able to survive on so little?

[DesertShores]

12:47 AM on 03/29/2010

The unintended consequences of the health care bill are just beginning

[johndtuttle]

12:58 AM on 03/29/2010

seeing as they made $3 Billion in profit in that same quarter (1/4 of the year) my guess is they can afford it. If they cut employee benefits it is just to screw them to pad the pockets of the CEO.

[winias]

07:49 AM on 03/29/2010

That's capitalism, kiddo. Why I live here.

[Solja]

07:08 PM on 03/29/2010

AT&T didn't sit idly by and not fight against healthcare reform. Believe that they were on Cap. Hill trying to get the bill watered down to their benefit. They now are trying to recoup the monies they spent on lobbying on the backs of the low paid workers in their company by laying them off by the masses.

[Stacy Evans]

11:48 PM on 03/28/2010

They grabbed the retirees because they know that the will not do much about it. From the Credit Card Act -causing hike in fees- to health care issues, there are so many new laws. Its all becoming tedious to keep track of. Though we are all seeing the immediate negative effects of all of these policy changes, I wonder if they will be for the better, later. So far, it seems rather gloomy.

Stacy Evans
http://www.icreditinc.com

[Flight]

11:46 PM on 03/28/2010

Though it was touted as a 'merger' when AT&T and BellSouth came together about 3 years ago, it really was a buyout with AT&T's brand and strategies front and center. Let me tell ya', the folks on the BellSouth side have been thrown under the bus ever since. Though they weren't perfect, the BellSouth Ivory Tower ultimately did care for the it's employees via benefits, etc. Not so much with AT&T. The company CLEARED $12B last year and now they are bitchin' about having to take a one-time charge with Obamacare with the money the government was paying back to them all these years. The AT&T Board and management does not acknowledge IT IS the employees who work to bring in the revenue and profits so they can be paid uber-generous pay and perks. The company has no loyalty to its employees and retirees whatsover.