Don't Believe AT&T's Health-Care 'Charge'

Since the Obama Administration's health care reform bill passed, dozens of companies have announced charges against earnings totaling $3.4 billion, according to the U.S. Chamber of Commerce (which fiercely opposed the new law). Foremost among them is AT&T Inc. (T), which took a write-down of just under $1 billion in its latest earnings results. Not far behind is Verizon Communications Inc. (VZ), which said it will record $970 million in health-care expenses.

Those charges have added fuel to the blaze of opposition to health care reform, and they prompted an investigation ordered by Democrats Henry Waxman and Bart Stupak. This week staffers from the House Energy & Commerce Committee concluded that “the companies acted properly and in accordance with accounting standards in submitting filings to the S.E.C. in March and April.”

That may be true, but a close look at these "charges" hardly strengthens the arguments against health-care reform. At issue is federal financial support for prescription drug benefits for retirees still covered by their former employers' health plan. According to The Wall Street Journal, "Companies that provide this benefit, as AT&T does, receive a federal subsidy, plus they can deduct the value of this subsidy from their taxes. The health overhaul cancels the deductibility of the subsidy."

In other words, under the previous health-care regime, companies got federal dollars to help pay for retiree drug coverage; they then deducted those dollars from their tax liability. Whatever your political views, that's a classic double-dip, and the new health-care legislation sensibly closed that loophole to help pay for the overall costs of the bill (which, let us recall, will reduce the U.S. budget deficit by dozens of billions over the next decade, according to the Congressional Budget Office).

AT&T and others have threatened to stop providing health-care benefits to employees and former workers once the bill takes effect.

The tax changes could “drive many employers to just drop coverage for retirees altogether," an executive at Caterpillar wrote in an e-mail message to colleagues, according to The New York Times, "and let the government foot the whole bill.”

That, of course, would be a great irony: A health-care reform that failed to establish a Canadian-style, "single-payer" system could have the indirect effect of driving companies to "let the government foot the bill."

Whether you think it's fair for corporations to soak the federal government, twice, for providing prescription drug plans to retirees probably depends on your political persuasion. There's no question, though, that this element of the health-care reform bill does away with the kind of "waste and fraud" that politicians of both parties have been railing against for years.

And, by the way, in the quarter in which it took the almost-$1 billion health-care-related charge, AT&T still managed to make $2.48 billion in profits.