Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

AT&T takes $1 billion health care reform charge

By Annalyn Censky, staff reporter


NEW YORK (CNNMoney.com) -- AT&T said Friday it will take a non-cash charge of about $1 billion for the current quarter in anticipation of costs resulting from the health care reform measure signed into law this week by President Obama.

In a filing with the Securities and Exchange Commission, the telecommunications provider said the charge is related to a part of the law that eliminates tax deductions for Medicare prescription drug subsidies.

When the Medicare prescription drug program was passed in 2003, it included a provision granting employers a subsidy of 28%, or up to $1,330, per retiree for prescription drug costs.

Even though the federal subsidies were already tax free, employers could still write them off on their income taxes, in addition to writing off their own contribution. The new law, signed by Obama on Tuesday, maintains the subsidy as a tax-free incentive to employers, but prohibits them from taking it as a deduction.

White House spokesman Robert Gibbs defended this change on Thursday, explaining that the previous law essentially allowed for two deductions - one for the employer's own contribution, and another for the tax-free federal subsidy.

"This bill, our bill simply closes the loophole and allows them to deduct that money one time by not counting it as income," Gibbs said.

Under the tax change, which Gibbs said won't go into effect until 2013, employers will still be able to deduct their own contributions to prescription drug costs.

AT&T (T, Fortune 500)'s news comes on the heels of similar announcements by Deere & Co. (DE, Fortune 500)and Caterpillar Inc. (CAT, Fortune 500) this week. Together, the industrial equipment companies expect to post $250 million in charges as a result of the smaller tax deductions.

In a letter to Congress in December, Deere, Caterpillar and eight other companies warned legislators of the cost increases. Boeing Co., Con-Way Inc., Exelon Corp., Navistar Inc., Verizon Communications Inc., Xerox Corp., Public Service Enterprise Group Inc. and MetLife Inc. were included in the letter.

AT&T is also reviewing its health care benefits offered to both current employees and its retirees, the company said in its SEC filing. To top of page

Index Last Change % Change
Dow 15,973.84 313.66 2.00%
Nasdaq 4,337.51 70.67 1.66%
S&P 500 1,864.78 35.70 1.95%
Treasuries 1.75 0.10 6.33%
Data as of 9:54pm ET
Company Price Change % Change
Bank of America Corp... 11.95 0.79 7.08%
General Electric Co 28.26 0.81 2.95%
Cisco Systems Inc 25.11 0.43 1.74%
Chesapeake Energy Co... 1.59 -0.19 -10.67%
Freeport-McMoRan Inc... 5.53 0.64 13.09%
Data as of 4:15pm ET
Sponsors

Sections

Investors need someone they can bring home to mother instead of bad boys (or girls) that may make their heart beat faster. Boring beats bold in this market. Here are 10 dependable stocks we love. Southwest (ticker symbol: LUV) is one. More

Cheap oil and slow global growth may not be the only culprits of the global market turmoil. There's growing concern that central banks are spooking the markets too. More

Eastern Illinois University laid off 198 staff members this week, and the college president is blaming the state government. More