AT&T takes $1 billion hit as health reform closes loophole
The Associated Press
By Barbara Ortutay
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 President Barack Obama signed Tuesday will raise their expenses. On Friday, 3M Co. said it will also take a charge of $85 million to $90 million.
All five are smaller than AT&T, and their combined charges are less than half of the $1 billion AT&T is planning. The $1 billion is a third of AT&T's most recent quarterly profit. In the fourth quarter of 2009, the company earned $3 billion on revenue of $30.9 billion.
AT&T said Friday that the charge reflects changes to how Medicare subsidies are taxed. White House spokesman Robert Gibbs said 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 deduct only the 72 percent they spent.