The costs that corporations say they will have to pay because of the new health legislation continue to climb as Verizon Communications said it will post a one-time charge of $970 million in the first quarter.
The overhaul blocks companies from deducting tax-free subsidies they get from Washington for providing retirees with prescription-drug benefits. That change doesn’t kick in until 2013, but companies are taking the charges now in anticipation.
That’s a bone of contention as the Obama administration officials have said companies are exaggerating the overhaul’s impact because they don’t like the new law. The charges are only a bookkeeping move and don’t require cash payouts by the companies, but corporate tax bills will eventually go up.
First-quarter charges related to the retiree drug benefits for companies in the Standard & Poor’s 500-stock index could reach $4.5 billion and affect as many as 1,400 corporations, some analysts say.
Companies with large groups of retirees will be affected most by the change. AT&T last week announced a $1 billion charge; Verizon’s charge of $970 million is the second largest so far, according to Dow Jones Newswires. Others high on the list include, Deere & Co. ($150 million), Boeing ($150 million), Caterpillar ($100 million) and Prudential Financial ($100 million).
Since the Medicare Part D program was enacted in 2003, the federal government has been providing the tax-free payments to the companies as an incentive to maintain their drug-benefit programs. More on the charges is here and here.
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