Health Inc.

Verizon Joins Companies Taking Overhaul Charges

Telecommunications giant Verizon became the latest corporation to say it would take an earnings hit because of tax changes in the new health law.

The company said in a securities filing Thursday that it expects to book a $970 million charge in the first quarter because, essentially, it will no longer be able to deduct from its taxes the value of a federal subsidy that goes toward prescription drug coverage for retirees.

The recently passed health law eliminates the deduction, which gave companies an extra benefit on top of the federal money to encourage drug coverage.

Last week AT&T said it would take a $1 billion hit for the same reason. Other companies, including Caterpillar, AK Steel and Deere & Co. are also taking charges to cover the tax change.

To put the Verizon tax hit in perspective, the company said in an annual securities filing in Feburary that it expects to collect $1.45 billion in subsidies from the federal government to help defray the costs of drug coverage for retirees through 2019.

Here's the rundown on that (click to enlarge):

Verizon's expected subsidies for prescription coverage. i i
Verizon 10-K
Verizon's expected subsidies for prescription coverage.
Verizon 10-K

Commerce Secretary Gary Locke defended health overhaul and its benefits for business in an opinion piece for the Wall Street Journal Thursday. On the tax change, he wrote:

Critics have seized on this accounting adjustment to suggest these costs—as much as $1 billion in one company's case—are going to place immediate and substantial cost burdens on America's businesses.

This is disingenuous.

The actual cash flow impact of these provisions begins in 2013, and is only a tiny fraction of the accounting charge-offs.



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