There is currently a rec diary discussing the fact that AT&T is taking a $1Billion charge to account for the change of a subsidy related to the recently passed HIR bill. I just want everyone to calm down about this charge that they are taking.
First, It is a ONE TIME CHARGE. Basically, AT&T is taking the lifetime hit associtated with this one change all at once due to accounting rules regarding projected future health care costs.
You'll also notice that AT&T (and media reporting this) don't point out the one time nature of the charge in question. Below, the fold, I'll discuss briefly what is going on.
Ok, here's the deal with the AT&T charge (as well as the other charges you've heard of - or will hear of soon). Let's start by talking about what the charge is related to. It all started with the Medicare Part D legislation that passed under George W. Bush. As an incentive for businesses to provide prescription coverage to retired employees, the federal government added a 28% subsidy to help cover employers expenses related to providing prescription coverage to retirees. So, if the company was paying $100 to cover retired employee coverage, the federal government would kick in $28(28%) to cover a part of the cost. Sounds simple, right? Well, here's where things get a little sticky. The law as written at the time allowed to company to write off as an expense the total $100(in the above example) on their financials - even though they were only paying out of pocket $72($100 - $28 gov't subsidy). The change in the new legislation will now only allow the company to deduct their actual out of pocket expenditures. Which makes total sense.
Now comes the slightly more difficult to deal with part. Companies such as AT&T have to record on their financial statements liabilities associated with the FUTURE estimated costs associated with providing insurance to retired employees, as well as recording as assets future tax related items such as these subsidies. Now that this subsidy will be treated differently(for tax purposes)the company needs to reduce the tax assets on its books to record the impact on FUTURE expenditures related to retiree health benefits. This is a ONE TIME CHARGE. It's not like we're talking about a $1 billion dollar hit each quarter, year, etc. Don't let the headlines fool you.
If you don't believe me, consider this article. In it, it states that the TOTAL subsidies paid out to ALL employers for this benefit in 2008 was $3.7 billion. By removing the deduction of the benefit the MOST taxes that could be raised, using 2008 subsidies as an example, would be $1.295 Billion($3.7Billion x 35% top corporate tax rate). There is no doubt that there will be a small cost to employers over time related to this change, but nowhere near the impact these one time charges would imply.