Saturday, March 27, 2010

Making a Profit on Health Care -- AT&T Style

AT&T and a few other companies (AK Steel Corporation, Caterpillar, Deere and Co., and Valero Energy) have recently said that the new health care law "would raise their expenses," and AT&T said they might have cut back on health benefits for workers.

Here's the crux of the problem for the companies: Previously, the federal government would provide subsidies to cover 28% of what the companies paid on medicare prescriptions (for their retired workers) and the companies could deduct the total of their expenditures on these prescriptions from their taxable income -- including what they already got reimbursed for. Essentially, they got to double-dip in this regard.

The new health care law closes this loop hole and states that companies will still receive subsidies to cover 28% of what they spend on prescriptions, but they will be allowed to deduct only 72% of what they spend from their taxable income. In other words, they won't get the subsidy and get to deduct it from their taxable income.

Sorry, but I don't think the corporations are going to gain my sympathy on this one -- especially AT&T, which earned more than $120 billion in consolated revenue in 2009.

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