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Healthcare law to cost AT&T $1 billion

Bloomberg  |  San Francisco/ New York 

AT&T Inc will book $1 billion in first-quarter costs related to the health-care law signed this week by President Barack Obama, the most of any US company so far.

A change in the tax treatment of Medicare subsidies triggered the non-cash expense, and the company will consider changes to the benefits it offers current and retired workers, Dallas-based AT&T said today in a regulatory filing.

AT&T, the biggest US phone company, joins Caterpillar Inc, AK Steel Holding Corp and 3M Co in recording non-cash expenses against earnings as a result of the law. Health-care costs may shave as much as $14 billion from US corporate profits, according to an estimate by benefits consulting firm Towers Watson. AT&T employed about 281,000 people as of the end of January.

like AT&T, that have large employee bases, are going to have higher healthcare costs and, therefore, lower earnings unless they can negotiate something or offer less to their employees,” said Chris Larsen, an analyst at Piper Jaffray & Coin New York, who rates AT&T shares “overweight” and doesn’t own any himself.

AT&T previously received a tax-free benefit from the government to subsidise healthcare costs for retirees, who would otherwise be on a Medicare Part D plan. Under the new bill, AT&T will no longer be able to deduct that subsidy.

“As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree healthcare benefits offered by the company,” the carrier said in the filing.

3M cost
AT&T’s announcement was followed about an hour later by 3M, the St Paul, Minnesota-based maker of products ranging from Post-It Notes to respiratory masks. 3M said it expects a one-time expense of $85 million to $90 million after tax, or about 12 cents a share, in the first quarter because of the new law, according to a statement. 3M had about 75,000 employees as of February 5.

Michael Coe, a spokesman for the carrier, declined to comment. Peter Thonis, a spokesman for Verizon Communications Inc, which also employs more than 200,000 people, declined to comment.

New York-based Verizon, the second-largest US phone company, told employees in a note after the law was signed that the tax will make the subsidy less valuable to employers like Verizon and so “may have significant implications for both retirees and employers.”

AT&T rose 9 cents to $26.24 at 4 pm in New York Stock Exchange composite trading. The shares have fallen 6.4 per cent this year.

Union contracts
AT&T employees represented by the Communications Workers of America union have health benefits locked in via contracts that don’t expire until 2012 and 2013, Candice Johnson, a spokeswoman for the union, said in an interview.

About 58 per cent of the carrier’s workforce is represented by the union, AT&T said in a filing.

Obama signed the healthcare reform policy into law on March 23 after a year of pushing the legislation through Congress without a single Republican vote. The new law will be phased in over several years and gives tens of millions of uninsured Americans health coverage. The bill, projected to cost almost $1 trillion, also calls for new taxes on the highest earners and fees on health-care

First Published: Sun, March 28 2010. 21:50 IST