Health-Care Bill Will Cost AT&T $1 Billion, May Lead to Cut in Retiree Drug Coverage: Who’s to Blame?

This story may well get a lot of press from both sides of the health-care debate this week. It’s a little complex, but it’s worth understanding fully; retirees may lose benefits over this, and we need to know why.

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The news: several companies, including 3M, John Deere, and Caterpillar, have already announced that due to the health-care plan recently (and with incredible tumult) signed into law, they’ll see raised expenses this year, which could be tough in this economic environment. But all of those companies’ added expenses combined don’t add up to half of AT&T’s proposed problem, announced on Friday and reported by The New York Times: the telecommunications giant says they’ll see a whopping $1 billion “noncash accounting charge” this year. In other words, AT&T will have $1 billion less in 2010 than in 2009, explicitly because of this bill–and such a big change in the books may mean AT&T will pass on the loss to its employees, possibly resulting in a loss of health-care benefits for retirees.

Specifically, the cuts in benefits will come in retiree drug coverage, which is an all-too-real problem. Retired AT&T workers may suddenly find themselves unable to afford medication, due to the passing of this bill. That sounds very bad for the pro-health-care side, and like a ready-made talking point for those against health-care reform, but it’s not nearly that simple. The question is: Why did a dollars disappeared from AT&T’s coffers?

The 2003 Medicare prescription drug bill, still in effect, gives a tax deduction to companies that provide prescription drug benefits for retirees. In fact, these companies, including AT&T, can deduct 100%–every single penny–of the money they spend on prescription drug benefits from their taxable income. Thus, AT&T gets to keep a whole chunk of money from being taxed, which basically means they get to pocket more of it. The government even goes one step further and subsidizes (read: pays for) a whopping 28% of those prescription drug benefits in the first place, to make prescription drug benefits as affordable as possible for the companies. The companies get both a 28% discount and a nice tax break, all to encourage them to provide prescription drug coverage.

But there’s a loophole in the law big enough to drive a Chevy Suburban through. These companies get to write off the entirety of their prescription medication plan, even though they’re actually only paying for 72% of it. The new health-care bill simply closes that loophole, and says that companies can still deduct every penny they pay on prescription drug benefits from their taxes–but only the money they’ve paid, not the 28% that the government hands them. That’s where the billion dollars comes from: AT&T is no longer allowed to deduct things they didn’t pay for in the first place.

So what happens from here? AT&T loses a billion dollars it didn’t have any right to keep to begin with, and what do they do?

AT&T said that it was also looking into changing the health care
benefits it offered because of the law. Analysts say retirees could lose
the prescription drug coverage provided by their former employers as a
result of the overhaul.

In other words, due to losing free money, AT&T will cut benefits for retirees. It’s not the health-care bill that’s resulting in retirees losing benefits–it’s AT&T cutting corners in the worst possible place.


That billion dollars could affect a lot of people; AT&T employees include 160,000 unionized telecom workers. The New York Times reports that the cut won’t just be sprung on retirees but is likely to be brought up at the next bout of contract negotiations between the union and the company–there’s time to work out the whole mess (read: politicize it) or for AT&T to recup its loss some other way.

The actual situation here is not easy to explain. It’s much easier to just say, “This health-care bill will force AT&T to cut
benefits for retirees.” It’s a nice soundbite, right? The only problem is, it’s just not true.


About the author

Dan Nosowitz is a freelance writer and editor who has written for Popular Science, The Awl, Gizmodo, Fast Company, BuzzFeed, and elsewhere. He holds an undergraduate degree from McGill University and currently lives in Brooklyn, because he has a beard and glasses and that's the law