Big employers rethink their healthcare plans

AT&T Inc. said Friday that it would record a $1-billion noncash expense in the first quarter related to the newly passed healthcare law, joining a growing list of large U.S. companies.

The AT&T write-down is the largest reported so far. Caterpillar Inc. this week recorded a $100-million charge in the first quarter, and Deere & Co. said it would report a one-time $150-million expense.

Among its many effects, the new healthcare law eliminated a tax deduction that companies used to cut the cost of drug-benefit programs for retired workers. President Obama signed the healthcare overhaul into law this week, a big victory for Democrats.

Yet companies that still offer retiree drug benefits, mostly older industrial concerns or those with unionized employees, say the end of the deduction could force them to change their benefit plans. In other words, they might curtail or even cancel them.

“As a result of this legislation, including the additional tax burden, AT&T will be evaluating prospective changes to the active and retiree healthcare benefits offered by the company,” AT&T said Friday in a government filing.

This week, Verizon Communications Inc. sent a letter to employees suggesting that changes to their health plans could be afoot. AT&T and Verizon are the two largest phone companies in the U.S. and employ a substantial number of unionized workers.

Several million retirees are estimated to receive drug benefits from a few thousand companies. If those retirees were shifted to the federal Medicare program, the government would pick up the expense. It is unclear whether savings from the elimination of the subsidy would offset those higher Medicare costs.

Under the old law, companies received a federal subsidy worth up to $1,330 per retiree if they provided former workers with drug benefits. Firms could also deduct the subsidy’s value from their taxable income.

White House spokesman Robert Gibbs said the government merely eliminated a tax loophole that, in effect, allowed companies to benefit twice from one law.

The AT&T announcement is sure to cause a ripple in Washington. Republicans have already assailed the administration for what they say are excessive costs heaped on business by the healthcare law. The issue is sure to be part of their campaign against Democrats in the fall elections.

Democrats say the healthcare law will become more popular over time, and they point out that it also includes substantial new subsidies for business.

“There’s $10 billion in healthcare reform for support for businesses with early retirees,” Gibbs said.

Bartash writes for McClatchy.