Health care charges were properApril 28 2010 at 9:32 AM
Inquiry Says Health Care Charges Were Proper
By ROBERT PEAR
When major companies declared that a provision of the new health care law would hurt earnings, Democrats were skeptical. But after investigating, House Democrats have concluded that the companies were right to tell investors and the government about the expected adverse effects of the law on their financial results.
Representative Henry Waxman had asked companies to document the estimated financial effects.
At issue is a section of the law that eliminates a tax break available to companies that provide drug benefits to retirees as part of their insurance coverage. The tax change, expected to generate $4.5 billion of revenue over the next 10 years, will help offset the cost of providing coverage to the uninsured.
Within days after President Obama signed the law on March 23, companies filed reports with the Securities and Exchange Commission, saying the tax change would have a material adverse effect on their earnings.
The White House suggested that companies were exaggerating the effects of the tax change. The commerce secretary, Gary F. Locke, said the companies were being premature and irresponsible in taking such write-downs.
Representative Henry A. Waxman of California and Bart Stupak of Michigan, both Democrats, opened an investigation and demanded that four companies AT&T, Caterpillar, Deere and Verizon supply documents analyzing the impact of health care reform, together with an explanation of their accounting methods.
The documents hundreds of pages of e-mail messages and financial worksheets include large amounts of data that substantiate the companies concerns. They have reignited a battle over the law in Congress.
Representative Joe L. Barton of Texas, the senior Republican on the House Energy and Commerce Committee, said, From a financial standpoint, from a purely economic standpoint, many companies would be better off discontinuing health care as a fringe benefit, paying the penalty and pocketing the savings.
In a memorandum summarizing its investigation, the Democratic staff of the committee said, The companies acted properly and in accordance with accounting standards in submitting filings to the S.E.C. in March and April.
Moreover, it said, these one-time charges were required by applicable accounting rules. The committee staff said this view was confirmed by independent experts at the Financial Accounting Standards Board and the American Academy of Actuaries.
Mr. Waxman, the chairman of the committee, and Mr. Stupak canceled a hearing at which they had planned to question executives on the effects of the law.
A tabulation by the United States Chamber of Commerce shows that at least 40 companies have taken charges against earnings that total $3.4 billion since the law was signed.
Companies like AT&T, Verizon and a range of stakeholder associations are hopeful that the benefits of the new law will outweigh the costs, Mr. Waxman and Mr. Stupak said in a memorandum to committee members. But they cannot quantify the benefits until the law is implemented.
AT&T, which took a $995 million charge to reflect the impact of the health care overhaul, said it would be evaluating prospective changes to the active and retiree health care benefits offered by the company.
Under another provision, employers may be subject to financial penalties if they do not offer health insurance to employees. Documents provided to Congress by AT&T indicate that its medical costs in 2009 were $4.7 billion, divided about equally between active employees and retirees far more than it would pay in penalties if it did not provide coverage.
Verizon said it was taking a $970 million charge against earnings because of the change in tax treatment of a subsidy it receives for retiree drug coverage. In addition, Verizon said it could be affected by a new tax on high-cost health plans that takes effect in 2018.
Many of the plans that Verizon offers to employees and retirees are projected to have costs above the thresholds in the legislation and will be subject to the 40 percent excise tax, the company told employees.
In a general analysis of the new law, Verizon said, To avoid additional costs and regulations, employers may consider exiting the employer health market and send employees to state-run insurance exchanges, where people can buy insurance.
A Caterpillar executive made a similar point in an e-mail message to colleagues, saying the tax changes could drive many employers to just drop coverage for retirees altogether, and let the government foot the whole bill.
Caterpillar, the maker of construction equipment, said Monday that it was taking a $90 million charge to earnings because of taxes resulting from the new health care law.
In addition, according to documents provided to Congress, Caterpillar could incur new costs because the law eliminates lifetime limits on coverage, and certain children would be allowed to stay on their parents insurance until their 26th birthday.
Source: New York Times
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