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The price of health-care reform: AT&T to take $1 billion charge

Telecom giant AT&T said today that it would be forced to record a $1 billion non-cash charge on its first-quarter earnings to account for increased costs associated with the health-care legislation signed into law earlier this week by President Obama.

The company also said it may have to cut health-care benefits to employees and retirees.

You've already seen some of this: Caterpillar, John Deere and Valero said they would have to take balance-sheet charges because the bill will increase the cost of health-care benefits to its employees. Also today, 3M said it would take a charge of up to $90 million. AT&T's charge is the biggest so far.

AT&T said it will be set back by $1 billion because the health-care bill changed the way Medicare subsidies are taxed.

Let me be clear about this, as our president says: A $1 billion charge against a balance sheet is a big, big deal. Even for a company as big as AT&T, which is worth about $154 billion.

Quoting from AT&T's filing today with the SEC:

On March 23, 2010, the President signed into law comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590). Included among the major provisions of the law is a change in the tax treatment of the Medicare Part D subsidy. AT&T Inc. ("AT&T") intends to take a non-cash charge of approximately $1 billion in the first quarter of 2010 to reflect the impact of this change. 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.

Much of the coverage of the year-long health-care legislation process focused on the political horse race, the morality of universal coverage, an examination of how other countries do things and so on. Little attention, frankly, was given to the cost that businesses will have to bear because of Obama's signature. And don't be fooled into thinking that only huge corporations such as AT&T will be affected; smaller businesses -- which provide the bulk of U.S. employment -- will be affected as well. And in a stagnant economy that is struggling with unemployment near 10 percent, that's a real concern.

You're going to see more announcements like AT&T's.

Follow me on Twitter at @theticker

By Frank Ahrens  |  March 26, 2010; 5:35 PM ET
Categories:  Congress , Obama , The Ticker  | Tags: 3M, AT&T, Obama, healthcare legislation, what is the cost of healthcare reform  
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Comments

The most common short-comings of the economic mindset of our leaders is that:

1) They focus on too narrow of a group of people (hey we helped create 1,000 green jobs)and fail to see how the entire economy is impacted (but the non-green economy just lost or failed to create 2,000 jobs)

2) They focus on too short of a timeframe (the cash-for-clunkers boosted auto sales by 20% in 2009 Q4) and therefore fail to see the long term impact (but there are fewer used cars, causing prices to go up, while accellerating purchase of new vehicles, which will lower future demand).

We need to stop this nonsense. The free market is the most efficient economic model ever created. The government needs to stop taking from some to give to others. Who ever said they were supposed to pick the winners?

We can't wait until November to take action, we need to Stop the Looters now. Join the Producers Strike at www.StopTheLooters.com.

It time to put our wealth on strike.

Posted by: mpohl | March 26, 2010 6:32 PM | Report abuse

if att loweers iy's benefits to it's workers I will use another cell phone line.

Posted by: njdion | March 26, 2010 6:51 PM | Report abuse

What needs to be figured into this equation is the crazy pay, bonuses and golden parachutes all of these large companies afford their executives. The higher-ups need to take a good hard look at where they really need to make the cuts. The CEO of AT&T increased his own earnings from 16mil in 2008 to 20mil in 2009 after a decrease in revenue and widespread layoffs during an economic recession. The citizens of this country need to stop blaming the government for their economic woes and look no further than the rampant greed and capitalism exploited by cronyism and privilege of powerful corporations that has run amok. Obama is a long-needed stalwart in that fight to help even the score between the haves and have-nots. Hopefully salary caps are next...

Posted by: limesparks | March 26, 2010 7:00 PM | Report abuse

@limesparks
Re salary caps - Way to Go! I am sure you wouldn't want little details like facts to get in the way of your excellent thesis, but here goes anyway -

AT&T paid their top five executives a little less than $20 Million combined in 2009. What do you think would have been fair for them to run the business?

May be nothing? Why not fire the five of them, pay five janitors $100K each to run the business, and pay the $19.5 Million windfall to the regular employees as a bonus? I am sure the 281000 AT&T employees would love that deal - and their $69.40c onetime bonus to get rid of the professionals running their company.

Posted by: lunatique7 | March 26, 2010 9:50 PM | Report abuse

If you click on the link in the article you can see it explained that this was actually a subsidy to these companies started in 2003 with the unpaid for Medicare Part D benefit. So now, the Obama admin is reducing the subsidy to business and the commenter above criticizes that in the name of "free enterprise". Wouldn't free enterprise mean that the companies aren't taking government handouts?

Posted by: marde1 | March 26, 2010 10:30 PM | Report abuse

@lunatique7
First, double-check your own facts. The CEO was paid over 20mil alone, the other 4 top execs were paid another 40mil combined. Sorry but nobody does 20 million dollars worth of work, even when profits can carry it. But there is no justification for that pay, let alone a raise. In the case of AT&T, they have had record layoffs and break-even profits during the recession of the past two years, yet the officers still saw it fit to raise their already exorbitant payouts another 33% in 2009. Greed, plain and simple and it is this same sickness that has ruined our economy. But by all means, go ahead and side with the corporate cronies; even with your old and tired argument that anyone should be paid whatever they can swindle out of the system, they still won't invite you to their yacht club or 3rd vacation home. By the way, its mine and yours and every other tax payer dollar that AT&T is crying about - that's right, the $1B lost is from Bush-era government subsidies for corporate health care plans that they will now lose under the new legislation. The spin is hilarious... they aren't losing money, they are having to give up an unfair freebie that was granted in 2003. Maybe finally now corporations will join the small business owners and self-employed and feel the real sting of what has become of healthcare costs in this country and see how glaringly obvious it was something had to be done...

Posted by: limesparks | March 27, 2010 12:59 AM | Report abuse

@limesparks

http://finance.yahoo.com/q/pr?s=T

Here's the salary data. I am sure you have the 'hidden secret real numbers' - these are the ones I am going off.

I don't actually disagree with one part of your twisted analysis - those corp subsidies should be completely eliminated. If companies were allowed ZERO deductions for health insurance premiums they would quickly get out of the business of artificially inflating the price of health care provision.

Still no comment on what 'fair' salaries should be for the gang of five?

I dare you to put a number to their worth..

Posted by: lunatique7 | March 27, 2010 9:56 AM | Report abuse

So instead of $154 Billions in PROFITS, AT&T will make $153 Billions in Profits and they are complaining.

The fking nerve!

Posted by: coqui44 | March 28, 2010 1:18 AM | Report abuse

A $1 billion accounting charge is NOT the same as $1 billion in cash payments today. AT&T is probably going to pay a few million dollars more per year - they are saying they expect to pay $1 billion or so across the lifespan of their retirees. I think the author needs to go redo basic corporate accounting.

When Medicare Part D was being passed, Congress decided to give companies covering their retirees' drug benefits a 28% subsidy per retiree. This was not unreasonable. What was unreasonable was that the companies were allowed to deduct the entire cost of the drug plans including the subsidy from earnings. The health reform bill removes only the deductibility of the subsidy - essentially, it no longer allows corporations covering retirees to double-dip. AT&T's charges were fairly high because they covered a lot of retirees. However, again, this is only going to amount to a few million dollars in higher taxes per year - that is not a huge deal, and they are still getting a subsidy for being ahead of the curve in covering retirees' drug benefits. It's not like this is going to put them into Chapter 7.

Posted by: weiwentg | March 28, 2010 11:01 AM | Report abuse

The sad thing about most of the silly comments I see that focus on management salaries is that these poor folks, who are berating AT&T are probably the ones who will be most affected by the billion dollar write-off and don't understand economics.

Listen closely. Probably many of you have pension or 401K plans that you either are using or hope to use as retirement. Keep in mind, these are managed plans that most likely are invested in AT&T and other companies that will be similarly affected. As companies have to take write-offs because of Obama's ridiculous plan, the stock prices will go down and so will your equity and the value of your retirement plan.
Obama's effort to start class warfare in this country is reprehesible. It doesn't help anyone and creates anger that doesn't accomplish anything. If CEOs made a little less, and some are overpaid, it wouldn't make a particle of difference to your compensation so why are you so jealous? Because some people are more successful than you? Could you do the AT&T CEO job? If so, then why aren't you doing it?

Posted by: Daisy5 | March 28, 2010 3:53 PM | Report abuse

marde1 has this right except for one thing: the new rule does not reduce subsidies to ATT, Deere, et al. It makes the subsidies non deductible for tax purposes. This seems a little outrageous to me. These guys are receiving a welfare payment from the taxpayers; the fact that they can't deduct it is an outrage? Help me.

Posted by: stevedwight | March 28, 2010 10:33 PM | Report abuse

So Waxman wants to drag the CEOs of CAT and John Deere?? They should tell little Henry to go F himself

Posted by: rg019571 | March 29, 2010 1:27 PM | Report abuse

@lunatique7

You're correct about the salary, of course, but you somehow forgot that a CEO's "salary" is seldom simply his salary.

The socialist mag Business Week published these "hidden secret real numbers" earlier this month:

http://www.businessweek.com/idg/2010-03-11/at-t-ceo-s-pay-jumps-35-to-20-3-million-in-2009.html

This means Mr. Stephenson makes about $5,350/hr, if he works 12 hrs/day, 6 days/week, without vacation. Hmm, maybe that's generous.

I'll suggest numbers that make sense for executive pay: How about paying the top executives a flat salary of $500/hr. Then they can have some perks (50% increase?) related to GOOD performance with stock value playing only a part in the performance equation.

At the current income of many CEOs, you'd think they were all f-ing Superman, saving the world for freedom. And then you look around at the last few years.

Let's get real. Trickle down economics has been demonstrated to profit the few at the top immensely, well beyond merit, while benefiting everyone else not at all. It's about time the govt. started planting throwing seeds to the people on the ground, and letting the profits GROW UP. The rest of it's fairy tales, or half-truths like the AT&T CEO salary.

Whose shill are you, anyway?

Posted by: Daseinen | March 29, 2010 4:04 PM | Report abuse

Your missing the point. The Health Care bill was rammed through one side of congress with little regard for the affects on business and the vast majority of people. The one thing reform was suppose to do was lower cost. Instead premuims are going to rise. You think the short fall to these major companies won't be passed on to their employees; which they are already threatening to do, the very people health care reform is suppose to help? Premiums are going to rise, health care cost are going to go up. Our pocket books will be dinged again, oh but this isn't a rise in taxes, so don't blame the goverment, its a rise in premiums to cover the cost burden of this weighty health care reform package. And were suppose to like it and be thankful? No thanks, this thing stinks, and sucks. More government control the more it cost us. My net pay continues to shrink, and it appears to me on my payroll statement that the shrinkage is all government related.

Posted by: hanocul6 | March 30, 2010 12:32 PM | Report abuse

Of course premiums will rise again. Remember that WellPoint raised rates 39% just last month, BEFORE the bill passed. But, in general, it will be rather difficult to tell whether it is the bill or just the health insurance companies doing what they've been doing for decades now. Of course, Republicans will always claim it's because of the health care bill.

The provision that everyone must buy health insurance is the primary means by which the Government aims to slow premium increases. If you add many healthy young people to the pool, you should get better rates (assuming the insurance companies don't just absorb any extras--Bigger Bonuses!).

But even insofar as the bill is responsible for premium increases, it will be for a combination of 3 reasons: (1) Because up-to-date, legitimate customers who become sick cannot be denied health coverage on technical justifications; (2) Because children with pre-existing conditions will be required to be covered under their parents insurance; and (3) Because adult children will be able to be covered until 26 under their parents insurance.

Which of these provisions would you suggest are unjust? Or maybe I'm wrong. What provisions or aspects of the bill do you think will raise costs beyond what the insurance companies would raise them anyway?

Posted by: Daseinen | March 30, 2010 5:07 PM | Report abuse

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