Heritage Foundation: $1 Billion AT&T Headache is Just ObamaCare’s First Side Effect

From The Heritage Foundation

In the closing days of the Congressional health care debate, House Speaker Nancy Pelosi (D-CA) told the National Association of Counties: “We have to pass the bill so that you can find out what is in it.” Today marks the end of just the first week of life under Obamacare and Speaker Pelosi has been proven right: we are just now finding out what is in it. This past Friday, AT&T, the biggest U.S. telephone company, announced that it would take a $1 billion charge against earnings thanks to tax changes buried in the 2,300+ page bill. $1 billion. That is a full third of AT&T’s $3 billion earnings for the fourth quarter of 2009.

The tax charges stem from changes Obamacare makes to the tax treatment of prescription-drug benefits for retirees. Companies used to be able to deduct part of their costs for providing drug benefits to their retirees, but Obamacare cancels that deduction. Roland McDevitt, director of health care research at Towers Watson, tells the Wall Street Journal, they “have a stream of tax benefits they are losing way out in the future.” Since companies had counted on these deductions for current and future retirees as an existing asset under the old law, accounting rules require firms to take the full loss for the change in the same quarter in which the tax law is changed. Hence Friday’s announcement to inform shareholders that AT&T’s bottom line was about to take a $1 billion hit.

AT&T’s billion-dollar Obamacare headache is so large due to the size (281,000 employees) of the company. Piper Jaffray & Co. analyst Chris Larsen tells Bloomberg: “Companies like AT&T, that have large employee bases, are going to have higher health-care costs and, therefore, lower earnings unless they can negotiate something or offer less to their employees.” And changes to current and future retirees’ health care seem to be exactly what will AT&T will do as a side effect of Obamacare. AT&T wrote in their Friday filing: “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.”

And AT&T is not alone. Towers Watson estimates that just this tax change alone will eliminate $14 billion in U.S. corporate profits. That’s $14 billion less American employers have to spend creating new jobs when our unemployment rate is still 9.7%. And AT&T is not the only company informing employees that Obamacare is going to mean worse care for them. Verizon Communications, the second biggest U.S. phone company, told employees last week that Obamacare “may have significant implications for both retirees and employers.”

The Heritage Foundation will be keeping you apprised of all of the consequences of Obamacare as they are learned with our new Foundry feature “Side Effects.” Already our health care experts have identified negative intended and unintended consequences from the legislation to children’s health insurance and health insurance taxes.

The American people already do not like this law. But to repeal it, we must keep Americans educated about all of Obamacare’s failures and offer our “Second Opinion” on what conservative idea would fix it.