A number of publically traded companies announced this week that they would be taking a charge due to the new healthcare reform bill. Given the fact that the bill was just signed, one can expect additional charge off announcements during the coming weeks.
WSJ: 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.
CNN: Manufacturer John Deere announced Thursday that it expected the company's expenses to be about $150 million higher than last year. That came a day after Caterpillar predicted a new cost of $100 million, and two days after AK Steel predicted a charge of $31 million.
Most of the new costs will come in a reduction in subsidies that about 1,400 companies receive for providing drug coverage to their retirees. In an effort to raise several billion dollars for implementing the health care package, the law makes those subsidies taxable, just like income.
The subsidies began in 2003, when a prescription drug benefit was added to Medicare. To prevent companies that provided retirees with private drug benefits from dumping them into the new Medicare program, the government began providing an incentive. Giving companies a subsidy to continue their private coverage of retirees costs the government around half as much as covering those same retirees directly with Medicare's drug plan.
The subsidy averages $665 per retiree, according to Roland McDevitt, who has studied the issue for human resources consultant Towers Watson. The new tax would lower that by $233 per retiree. Because each company will have to make up the difference up front for the duration of each retiree's retirement, McDevitt estimates the change will cost companies $2,800 per retiree this year.
"That's a pretty big impact it will have on them," McDevitt said. "Having an additional cost like this is not great timing," Caterpillar spokesman Jim Dugan said.
3M Co Press Release: will record a one-time non-cash charge of up to $90 million, or 12 cents a share, in the first quarter as a result of the U.S. health reform signed into law this week, the company said on Friday.