Tussle over health care law impact on companies

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- A growing number of major U.S. corporations are expecting to take tax charges in the first quarter related to the recently enacted health care reform law.

But while some companies are fretting about the charges, defenders of the law say the new rules merely close a loophole that allowed a double-dip benefit.

On Wednesday, Boeing (BA, Fortune 500) became the latest company to disclose that the law, which was signed by President Obama last week, will negatively impact its financial results.

The aeronautics company expects to take an income tax charge of roughly $150 million, or 20 cents per share, in the first quarter of 2010 as a result of the law.

AT&T (T, Fortune 500) said last week that it expects to book a $1 billion charge in the first quarter in anticipation of costs resulting from health care reform. That came after similar announcements from Deere (DE, Fortune 500) and Caterpillar (CAT, Fortune 500).

The charges stem from 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 maintains the subsidy as a tax-free incentive to employers, but prohibits them from taking it as a deduction.

While the provision does not go into effect until 2013, the companies said accounting standards require that the charges be recorded during the period in which the law was signed.

Obama administration officials have defended the change by arguing 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," said White House spokesman Robert Gibbs in a news conference last week.

However, critics of the provision say the financial hit will force companies to delay hiring and scale back benefits for existing employees.

"This is potentially devastating news for unemployed Americans who are waiting for the job-creating engine of our economy to rev up again," Tom Donohue, president of the U.S. Chamber of Commerce, wrote in a letter to members of the Chamber's board Monday.

In addition, critics say removing the subsidy will deter employers from providing full health care benefits, which would force more workers to rely on Medicare and end up shifting the cost to the public sector.

"The government will soon find out that by raising the cost for these companies they're incenting employers to drop these plans and send their employees into the Medicare program," said Chamber spokeswoman Blair Latoff.

AT&T highlighted those concerns last week when it said it's considering unspecified changes to its employee benefit as a result of the legislation. But a spokesman for Boeing, John Dern, said the company currently has no plans to alter its employee benefits.

-- CNNMoney.com staff reporter Annalyn Censky contributed to this report.

An early version of this story misstated who the letter was addressed to. CNNMoney.com regrets the error. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,960.57 -123.23 -0.72%
Nasdaq 4,449.56 -22.54 -0.50%
S&P 500 1,978.34 -9.64 -0.48%
Treasuries 2.47 -0.04 -1.59%
Data as of 12:20am ET
Company Price Change % Change
Facebook Inc 75.19 0.21 0.28%
Apple Inc 97.67 0.64 0.66%
Bank of America Corp... 15.59 -0.03 -0.19%
Ford Motor Co 17.62 -0.22 -1.23%
Applied Materials In... 21.23 -0.52 -2.41%
Data as of Jul 25

Sections

The food processing company accused of mishandling meat at its Shanghai, China plant says it will suspend sales and recall all food processed there. More

Is the economy back on track after a weak first quarter or about to get blown away? Investors will find out when the curtain is drawn on jobs and GDP data. There's also a Federal Reserve meeting. More

Louisiana is now the top location for motion picture filming, supporting thousands of new jobs and small businesses. More

Americans with disabilities face huge financial hurdles and it starts early on, according to a recent report. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.