AT&T's $1 Billion Charge Connected to Health Reform Is Just the Start

With the passage of national health reform, top U.S. corporations are beginning to take huge charges because the new legislation is expected to reduce the deductions they can claim for their various employee health-care programs. On Friday, AT&T (T) said in a federal filing it would need to take a $1 billion non-cash charge. The number is based on the new rules about what it can deduct for its payments for retiree prescription drug programs.

Under old laws, companies got a federal subsidy worth $1,330 for each retired worker on these programs. As a form of double dipping, corporations with the retiree benefit programs also got to deduct the subsidy. Thus, AT&T's problem. The tax benefit has gone away.

AT&T is not the first large American company to face the problem, and it will not be the last. Caterpillar (CAT) said it will take a $100 million charge. Deere (DE) will take a hit of $150 million. 3M (MMM) reported its charge will be $85 million to $90 million. AK Steel (AKS) will take a $31 million charge this quarter, the company said.

Most of the companies that will take the huge charges have not yet released their figures. Certainly, AT&T rival Verizon (VZ) will have a charge similar to Ma Bell's. Other large industrial companies with legacy retirement costs will take write-downs in the hundreds of millions of dollars. These companies could include GE (GE) and Boeing (BA).

Most firms losing the tax credit will have to disclose a number when they release first quarter 2010 earnings, if not before. Based on the figures to date, the aggregate cost of the health-care reform bill to major U.S. corporations will be in tens of billions of dollars. And, that's just for starters.