AT&T Inc will take a US$1 billion non-cash accounting charge in the first quarter because of the health care overhaul and may cut the 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 US President Barack Obama signed on Tuesday will raise their expenses. On Friday, 3M Co said it would also take a charge of US$85 million to US$90 million.
All five are smaller than AT&T and their combined charges are less than half of the US$1 billion that AT&T is planning.
The US$1 billion is a third of AT&T’s most recent quarterly earnings.
In the fourth quarter of last year, the company earned US$3 billion on revenue of US$30.9 billion.
AT&T said on 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 on 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 on Friday that it was looking into changing the health care benefits it offers because of the new law. Analysts said 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 US.
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.
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