Tags: Healthcare | Overhaul | Profits | Companies

Obamacare Turns Into a Bitter Pill for Many Big U.S. Companies

Friday, 26 March 2010 02:49 PM

Several major U.S. companies said the healthcare overhaul will cost them millions of dollars this year, but the White House dismissed their complaints, saying it was simply closing a tax loophole.

AT&T said Friday that it would record a $1 billion non-cash charge for the current quarter related to the bill. The operator, whose annual revenue is expected to be $124.1 billion this year, said the charge is the result of a provision in the law related to the tax treatment of Medicare subsidies.

AT&T also said it will be evaluating prospective changes to the healthcare benefits it offers.

Diversified manufacturer 3M said it will take a charge of $85 to $90 million in its first quarter as a result of health reform.

These announcements followed statements from manufacturers Deere and Caterpillar, which said on Thursday that they are expecting a combined $250 million in charges this year as a result of changes to the $2.5 trillion U.S. healthcare system.

They can no longer deduct from their taxes the subsidies paid by the federal government for retiree drug benefits.

Caterpillar, Deere and a handful of other big U.S. companies including Boeing, Verizon Communications, and Xerox had for months opposed that change.

In a filing with the U.S. Securities and Exchange Commission, Peoria, Illinois-based Caterpillar described the move as a tax hike.

Republicans — who had fought the healthcare bill that was a cornerstone of Democratic President Barack Obama's domestic policy — jumped on the company charges as evidence that the law would be damaging to the U.S. economy.

"It didn't take 48 hours before the tax increases in this healthcare bill started to hit manufacturers and other employers," said Representative Dave Camp, the top Republican on the tax-writing House Ways and Means Committee.

"The healthcare bill is the single largest tax increase in American history. It is a government takeover of healthcare that families cannot afford and our economy cannot afford."

White House spokesman Robert Gibbs brushed aside the companies' complaints, saying the changes amounted to closing a tax loophole.

"So basically, they get a subsidy and what amounts to two deductions," Gibbs told reporters on Air Force One en route to Iowa City, where Obama was on a public relations blitz intended to drum up public support and stop a Republican effort to repeal the newly signed legislation.

"They get the subsidy that's not counted as income, then they get to write off the spending. This bill, our bill, simply closes the loophole," said Gibbs.

Investors appeared to take the news in stride, as both companies' shares were up around 1 percent, outpacing the broad Standard & Poor's 500 index.

"This is a near-term, quick-hit charge," said Jeff Windau, an industrial analyst at Edward Jones in St. Louis, who follows both Caterpillar and Deere.

"A lot of investors are still looking through to the longer-term question of what's the economy doing? There's growth out there and we can handle this one-time charge."

Despite the political furor around the legislation, Windau said many investors may feel confident that companies that just survived the worst recession since the Great Depression of the 1930s will be able to handle a change in the system.

"Investors have confidence that they can manage these costs as well," Windau said.

While the change does not take immediate effect, Caterpillar, the world's largest maker of earth-moving equipment, said accounting standards require it to book a $100 million after-tax charge to reflect the change during the current fiscal quarter.

Analysts, on average, had looked for a first quarter profit at Caterpillar of about $280 million, or 45 cents per share, according to Thomson Reuters I/B/E/S.

Deere, a maker of farm equipment, said it expects to record a $150 million charge, mostly in its current fiscal second quarter. It had forecast full-year earnings of about $1.3 billion.

Wall Street had looked for the Moline, Illinois-based company to post second fiscal quarter profit of $450.6 million, or $1.06 a share, from Deere, with full-year profit forecast at $1.37 billion, or $3.21 per share.

Caterpillar and Deere are not the first companies to project their costs related to the reform package, which is high on corporate America's radar since more than 150 million working-age Americans get health benefits from their employers.

Diversified U.S. manufacturer Honeywell International in January estimated that healthcare reform would trim its first quarter earnings by 4 to 5 cents per share.

That forecast — which came at a time when it was unsure whether healthcare reform would pass at all, let alone what form it would take — surprised investors, who sent Honeywell shares down despite a fourth-quarter earnings report that topped Wall Street forecasts.

A Honeywell spokesman said Thursday that the company has not updated the earlier cost estimate and would continue to review the legislation.

© 2019 Thomson/Reuters. All rights reserved.

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Several major U.S. companies said the healthcare overhaul will cost them millions of dollars this year, but the White House dismissed their complaints, saying it was simply closing a tax loophole. AT T said Friday that it would record a $1 billion non-cash charge for the...
Friday, 26 March 2010 02:49 PM
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