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Health care industry

Companies Announce $1.8 Billion in Charges Due to Health Care Overhaul

Strategic Insights

— 1 min read

As companies begin to adjust to the new health care overhaul, at least 14 have disclosed a total of $1.8 billion in charges, with some notable announcements including $1 billion from AT&T. The charges are a result of losing a deduction for some prescription drug expenses for retirees, which they had been able to deduct under a government subsidy. This subsidy ends in 2013 under the new law, and companies are now accounting for the loss due to new accounting rules.

Key Takeaways:

  • 14 companies have disclosed a total of $1.8 billion in charges, with $1 billion from AT&T, $150 million from Boeing, $96 million from Lockheed Martin, $41 million from Ingersoll-Rand PLC, and $10 million from Goodrich Corp.
  • Companies will face a higher tax bill starting in 2013 if they keep paying for prescription drugs for retirees.
  • The size of the charge each company reports depends in part on how many retirees get the prescription drug benefit and how generous the benefit is.
  • The new health care overhaul ends a government subsidy that allowed companies to deduct prescription drug expenses for retirees.
  • Companies are announcing the charges now because new accounting rules require them to book the costs during the period a new law is enacted.
  • David Green, National Life Sciences Tax sector Leader at Deloitte Tax LLP, said the charge each company reports is impacted by the number of retirees and the generosity of the benefit.

Statistics:

  • $1.8 billion in charges announced by 14 companies
  • $1 billion in charges from AT&T
  • $150 million charge from Boeing
  • $96 million charge from Lockheed Martin
  • $41 million non-cash charge from Ingersoll-Rand PLC
  • $10 million charge from Goodrich Corp.
  • Companies will face higher tax bill starting in 2013
  • 20 cent per share earnings decline for Boeing in the first quarter of 2010
  • 25 cent per share earnings decline for Lockheed Martin
  • Boeing shares fell 92 cents to close at $72.61
  • Goodrich shares dropped $1.02 to close at $70.52
  • Ingersoll-Rand shares fell a penny to close at $34.87
  • Lockheed Martin shares fell 87 cents to close at $83.22

Sources:

  • Euclid Infotech Pvt. Ltd.
  • Syndigate.info an Albawaba.com company
  • Deloitte Tax LLP (quote by David Green)

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