AT&T plans $1B charge for health care bill costs

Posted March 26, 2010 at 1:43 p.m.

att.jpgAssociated Press | AT&T Inc. said Friday it will take a $1 billion non-cash charge in the first quarter related to the health care overhaul.

AT&T’s charge is the largest announced 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.

President and CEO Randall Stephenson today in Las Vegas.(AP Photo/Isaac Brekken)

AT&T said the charge is to reflect the change of the tax treatment
of Medicare subsidies. Companies say the health care overhaul will make
a subsidy that companies receive for retiree drug coverage taxable in

AT&T also said it is looking into changing the health care benefits it offers to active and retired workers because of the legislation. Analysts say retirees could lose the prescription drug coverage provided by their former employers.

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 did not immediately return a phone call seeking comment.

AT&T shares climbed 7 cents to $26.22 in afternoon trading.



  1. Joe Shmo March 26, 2010 at 1:59 pm

    I’m afraid this may be just the tip of the iceberg.

  2. Right Of Center March 26, 2010 at 2:16 pm

    Barry, Nancy and Harry said this would be a job creator and not a job killer.
    I can’t imagine AT&T taking a 1 billion hit or any of these other companies taking hits and just saying, “Oh well OK that’s just the way the cookie crumbles.”

  3. jack (the real one) March 26, 2010 at 2:17 pm

    But in AT&T’s case, the duopoly can tack it onto your phone bill. If Caterpillar’s estimate is correct, they probably can’t pass it on.

  4. Fred March 26, 2010 at 2:17 pm

    Don’t waste your tears on AT&T. This is a company which used to (maybe still does) take out life insurance policies on its employees, assuring that the company would benefit financially from their deaths. I guess cutting health insurance benefits is their way of accelerating these rewards.

  5. Right Of Center March 26, 2010 at 2:31 pm

    Barry, Nancy and Harry said this would be a job creator and not a job killer.
    I can’t imagine AT&T taking a 1 billion hit or any of these other companies taking hits and just saying, “Oh well OK that’s just the way the cookie crumbles.”

  6. innocent III March 26, 2010 at 2:33 pm

    When you make something more expensive then people buy less of it. This massive bill just made the labor of American citizens significantly more expensive. What do you suppose the response to that will be?
    AT&T is a service business that can’t outsource all its work to China. But it can (and will) substitute capital for labor, and outsource/offshore anything it can.
    What do you think companies are going to do, when faced with expenses like this?
    You can say they “shouldn’t” outsource/offshore, but, their competitors will– and if they don’t, they’ll go out of business.

  7. Anne L. March 26, 2010 at 3:45 pm

    If they would cut out their outrageous bonuses, get rid of unions and their cadillas plans then they would be able to afford the changed. Plus they don’t know what the true changes are yet so stop sending everyone in a panic.
    Executives need to get off their high horses and get real.

  8. ed March 26, 2010 at 4:09 pm

    Structural unemployment in the double digits-isn’t that the kind of hope and change we can learn to love?

  9. JLE March 26, 2010 at 4:12 pm

    Good. That’s payback from AT&T for illegally spying on us during the Bush/Cheney administration.

  10. ed March 26, 2010 at 4:29 pm

    Unfortunately for the dummies who have started to show up and comment, AT&T employs people and, guess what, it will employ fewer as its costs go up. So, let’s not waste tears for AT&T, just for the poor schlubs who are going to get their walking papers. Or maybe the other poor schlubs who won’t get hired. Are Dem voters really this stupid?

  11. KPO'M March 26, 2010 at 4:33 pm

    The reason that companies are taking this charge is that the new bill changes the way prescription drug benefits are taxed. When Congress passed the Medicare drug benefit, they gave a tax break to companies already offering their retirees drug benefits. The idea was that it was cheaper to offer companies a tax break than for them to dump the benefits and expand the number of people on Medicare Part D.
    Now the new bill takes that away. Companies are likely to drop retiree drug benefits, dumping more people onto Medicare. Of course, that wasn’t included in the CBO score.

  12. dom March 26, 2010 at 5:02 pm

    AT&T wouldn’t be complaining if they would man up and break their unions. Those guys get paid ridiculously well. My cousin who has no education and no integrity makes a bundle and assumes he is entitled to it. If AT&T wants to update their network alone, healthcare plan not withstanding, if they want to be competitive they need their workers to take a hit just like the majority of their customers….

  13. C M N March 26, 2010 at 5:04 pm

    From an AT&T site itself:
    For the full year 2009, compared with 2008 results, AT&T’s consolidated revenues totaled $123.0 billion versus $124.0 billion; operating expenses were $101.5 billion, compared with $101.0 billion; net income attributable to AT&T was $12.5 billion versus $12.9 billion; and earnings per diluted share totaled $2.12, compared with $2.16.
    In other words, if what they claim is true and was applicable in 2009, AT&T would have made $22 billion in profit instead of the $23 they actually did. And contributed immensely to the sense of security and comfort of their employees who made the profit for the corporation and did not get the kind of bonuses the suits gave themselves.

  14. ethan March 26, 2010 at 5:09 pm

    Anne, This is nothing more than ATT’s way of firing a warning shot to the union(s) to let them know that they are going to have to pick up a portion of the cost. The union’s crying of “no way, not me!” is already being heard.

  15. Gabe March 26, 2010 at 5:15 pm

    Why is AT&T receiving a subsidy from whom? Us..? and if the tax is 1 Billion dollars than it means the subsidy is many Billions of dollars. Who is running AT&T? Glenn Beck?

  16. ethan March 26, 2010 at 5:20 pm

    JLE, Sorry to burst your bubble, but the government has been monitoring you for years long before Bush/Cheney. Do yourself a favor and watch “Enenmy of the State” this weekend.

  17. charlie brown March 26, 2010 at 5:44 pm

    as if these crooks don’t have enough money already, money hungry bastards…health care legislation is a great innitiative to upstart our economy,and it’s a shame how these greedy s.o.b’s just want it all for themselves,as if they don’t have enough.we complain about money all the time, when in reality there are people out there that have it much worse.who cares if my premium on insurance goes up a couple bucks, as an american my moral values have taught me to share the wealth of our great country,let’s give everyone the chance to prosper and receive the same benefits many of us have.

  18. Mike T. March 26, 2010 at 6:26 pm

    Thank, Pelosi, Obama and Reed. This Healthcare Bill will ruin the working class.

  19. Mike T March 26, 2010 at 6:34 pm

    Dom, You’re an idiot…

  20. OhWhatever March 26, 2010 at 6:35 pm

    “Thank, Pelosi, Obama and Reed. This Healthcare Bill will ruin the working class.”
    But health insurance companies that refuse to pay for your cancer treatment because you had a pimple looked at ten years ago will be the salvation of the working class.

  21. Mike March 26, 2010 at 6:36 pm

    Actually Obama’s warrantless wiretapping is exactly the same as Bush’s.

  22. John Doe March 26, 2010 at 7:46 pm

    The financial circle of life. If government mandates more coverage, that money has to come from somewhere. It can come from from increasing deficit (borrowing), or the general population (taxes). I suppose they could also just print more (inflation) as well, since they’re the government. To think that it will actually come from the companies in the long run is incredibly short sighted. If it did, their earnings would drop, and their stock would drop. If if did, then all of the pension plans (school, union, etc) would drop, as well as individual 401k and savings. just cause you didn’t buy ATT stock, doesn’t mean you aren’t affected by ATT stock price. They will also hire fewer people or lower benefits if necessary, or raise phone call prices, cause that’s what it’s all about – grow earnings, which the leaders of the company will do or get fired because the pension plans and unions and you and I will make sure of it. The Obamahood administration understands all this, but they don’t care – they just want votes. So, they decide to fix the downhill spiral by taxing the rich. They somehow think they’re smarter than the rich, and can throw down a tax that will take their money – once again very short sighted. The rich will either find a way around the new tax (move investments), or pack up and leave the country with their money. So, the net effect in the end is larger gov’t, and a bigger bill for our children to pay later. Or higher taxes to all. (Oh – along with richer hospital administrators and medical company CEO’s). As any real business owner understands, with a fixed market, you can charge your customers more (taxes), borrow, or lower your costs when ends don’t meet. The real solution is to improve the efficiency of the health care system (reduce cost) – reduce paperwork, reduce overhead, reduce gov’ts role. But that’s boring. It doesn’t generate emotion, and hence doesn’t create votes, so it’s bad. My opinion of all this is we need a new way of governing – the current one is antiquated and isn’t working in the complicated global economy we’re in.

  23. Planwell March 26, 2010 at 8:30 pm

    This is now surprise to anyone who understands economics & business – or even reads the WSJ once in a while. Politicians and the CBO can operate in fairy tale land but businesses don’t have that luxury if they want to survive. They can’t print money. If you want to know what will happen once we can’t borrow anymore from China, just look at Greece.

  24. Jim March 26, 2010 at 8:55 pm

    Boo Hoo, poor AT&T, maybe we will all lose phone service? Oh we already did!

  25. Matt March 26, 2010 at 9:14 pm

    This article does not tell the whole story. The health bill ended a tax subsidy that these companies were getting. Basically large companies were not paying taxes on some of their retirees prescription drugs. I know that I have to pay taxes on income used for prescription drugs so large companies should have to as well. Its about time that some of the corporate welfare that goes on is being stopped. Any teabagger that doesn’t think this move is justified just proves that they have no idea what true capitalism is- and it does not include corporate welfare handouts.

  26. Planwell March 26, 2010 at 10:02 pm

    Matt: Your point is well taken, but this is still a tax increase on business and not good for jobs. They must lower their costs somewhere else now to survive. But I agree with you, corporate taxes should be low to nothing to begin with if you really want to grow the economy.

  27. Matt March 26, 2010 at 10:15 pm

    Planwell: Look at Ireland who had the lowest corporate tax rate in the western world. They had their worst economic year on record in 2009.
    Low corporate taxes are only a small part of a company’s health. Would you want to pay 30% on $10 billion in profit or 10% on $1 billion? I know what I would rather do.

  28. Mike March 26, 2010 at 10:29 pm

    AT&T are not the only ones losing on this deal 3M is going to write off 85 million this first quarter. So the hiring freeze will continue for most business.
    I will wait and see what happens with this plan but you know nothing is free and someone, probably that middle class is going to pay for it. Could class structure shift dramatically, maybe. It will be the Wealthy class-and democrats are wealthy elites too, so zip it, and the working class.

  29. John March 26, 2010 at 10:36 pm

    no more corporate welfare!!!
    People who have no insurance at all should not be subsidizing AT&T’s, Caterpillars or any corporate benefits.

  30. Planwell March 26, 2010 at 11:01 pm

    Of course taxes are just one component of business and in a stable environment can be factored in and managed. Raising taxes in a hot growth environment could even be considered good policy – like Clinton in the late 90’s. Unfortunately, this tax increase couldn’t come at a worse time and there is now less money for AT&T and many, many others to invest & grow their business.

  31. NPR March 27, 2010 at 1:13 a.m.

    People can complain all they want about corporate profits, but reality is when profits go down it’s the average employee that suffers. IMO, everyone loses in this situation. AT&T will lose $1BIL. By providing their retirees with prescription drug coverage they were saving the taxpayers millions of dollars in prescription drug costs that Medicare Part B would have paid for. I highly doubt AT&T will continue providing this benefit because they will now be penalized. As a result, their retirees lose because private insurance for prescription drugs covers a larger variety of medications. They will either have to switch medications or pay out of pocket for drugs that are more effective than what Medicare would cover. If & when more companies cut the health care benefits that they provide to their employees/retirees, or have more layoffs, we as taxpayers will lose because more people than expected will be added to the Medicare/Medicaid roles and at some point the Feds will have to raise the FICA withholdings of anyone that will still have a job.
    Sadly, I believe we will see more layoffs and more companies slashing HC bennies.

  32. Truft teller March 27, 2010 at 3:51 a.m.

    What I think you all have failed to realize is that these money hungry greedy s.o.b’s we call CEO’s are so greedy that they can’t help themselves but to grow their companies. Yes, in the short term they may scale back services and raise costs but when that initial knee jerk reaction levels off they will do what they always do, try to grow their company, thus creating more jobs. A company like AT&T with profits in the double digit billions is not going to close its doors because they have to pick up the tab on a measley $1B bill (so they say that’s what it is anyway). As soon as they realize that the country has totally shifted to all cellular/satellite technology they will compete like hell in that market and try to grow their company to raise their profits. Yes, costs to consumers will go up but I have news for you, THEY ALREADY ARE and have been for quite sometime. If I am going to pay higher costs, I at least like knowing that maybe some unfortunate child with leukemia is able to get treatment. That is, after all, what this is about. And for all of you who are against the Health Care Bill, let’s see how you feel about it when you get cancer and your insurance tries to drop your coverage……oh wait they can’t do that now. Lucky you!

  33. Gabe March 27, 2010 at 9:48 a.m.

    Matt, The complaint from AT&T seemed pretty fishy to me and you explained very well the other side of the story. If AT&T allegedly is tagged with 1 Billion tax bill for subsidy, that means that AT&T is getting subsidies of more than 3 Billion dollars from our taxes. Someone here is exaggerating and creating myths about Healthcare reform. If we are shelling 3 Billion dollars to cover AT&T’s responsibility for retirees, then the problem is the subsidy not the tax bill. So, if you want smaller government, we should be out of subsidizing big profitable corporations. One way to make government small is by seizing to fund big corporate hogs and let the market dictate who wins out. I am all for ending corporate welfare!! Let’s call our Senators and Congress reps to end corporate welfare!

  34. steve March 28, 2010 at 4:06 pm

    Everyone needs to stop crying big bad AT&T. The tax accounting related to this charge did not start with, and was not caused by AT&T. This whole situation has come about due to the write off of future tax benefits, origionally set up under FASB pronouncement (FSP 106-2). Now, as result of those furture tax benefits going away, the entire amount must be written off during the first quarter of 2010.
    This is not some giant scam by AT&T executives. This is not the collapse of corporate profits. This is not doom and gloom due to the health care legislation. This is simple tax accounting, a below the line, non-cash charge.

  35. former employee March 30, 2010 at 9:15 pm

    Pls believe…this was all a intricate plan…we were notified one day after the legislation passed they were reducing our department. NOW…we are all scrambling within a 30-day notice to get kids to the dr, fill scripts, and take care of dental/vision issues before they get worse. The COBRA payments are horrible…

  36. verizon internet May 5, 2010 at 6:42 a.m.

    Good post, thanks