It was a long fight but on Tuesday President Obama signed the historic healthcare reform legislation into law promising coverage for 32m more Americans at the modest price of $950bn over 10 years, the FT’s US Business Correspondent Jeremy Lemer writes.
First came the party and now the hangover. On Friday, AT&T, the phone company, said the law would increase its taxes, and force it to take a one-off $1bn non-cash charge in the first quarter.
The FT will be looking at the impact of health care reform on corporate America in more detail over the weekend but for now here is what we know.
The changes in legislation have already affected other companies. Deere & Co, Qwest and Caterpillar all expect to take charges of over $100m, while companies like AK Steel, Honeywell and 3M anticipate smaller charges.
David Zion, accounting specialist at Credit Suisse, estimates that in total, S&P 500 companies will take a $4.5bn wallop in the first quarter and about 45 companies will take a charge of more than 10 per cent of expected first quarter earnings.
The red ink stems from changes in the healthcare legislation to the tax treatment of certain prescription-drug benefits.
Currently many corporations, particularly in the industrial and telco sectors, receive a 28 per cent subsidy towards paying for prescription-drug coverage. They are also able to deduct the total amount they spend on such drugs from taxes.
Under the new law, companies will still receive the subsidy but will no longer be able to write off the subsidy against taxes, which will cause their tax bills to rise.
Still, the damage appears worse than it is. Because of accounting rules, the companies have to take the entire charge now even though the impact of the health-care law won’t be felt until 2013, when their yearly tax bills will increase – but only modestly.
More ominously however, the new legislation looks like it might cause the affected companies to take another look at the benefits they provide workers.
“As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree health care benefits offered by the company,” AT&T said in its regulatory filing.
Watch this space.
Related links:
Obama signs landmark health bill – FT
Full speech: Obama’s health reform push – FT