Verizon Takes $970 Million Health Care Cost Charge

Verizon will take a one-time, non-cash tax charge of about $970 million in the first quarter 2010 to account for changes to its financial obligations required by the "Patient Protection and Affordable Care Act," which became law on March 23, 2010.

AT&T announced a similar charge of about $1 billion in March. Both firms have high retiree populations, and have been providing subsidized health care benefits to those retirees under Medicare Part D.

Because of the new law, Verizon and AT&T will no longer receive a Federal income tax deduction for those expenses.

Because future anticipated retiree health care liabilities and related subsidies are already reflected in Verizon’s financial statements, this change requires Verizon to reduce the value of the related tax benefits recognized in its financial statements in the period during which the law is enacted.

Going forward, both firms will face either higher operating costs or will reduce or cancel those retiree benefits.

Some observers have questioned whether the restatements are a "political ploy." Apparently those observers are not aware of how Sarbanes-Oxley legislation works. If the chief officers of a corporation, including its CEO and CFO, materially misrepresent a company's financial position--and $1 billion in a quarter is a material fact--those executives can be sent to jail.

Even medium-sized firms can incur costs of about $1 million a year to comply with Sarbanes-Oxley, by the way, imposing a huge financial drag on enterprises across the United States. And one reason many start-up firms say they will not, or cannot "go public" is the cost of Sarbanes-Oxley compliance costs.

Nor does it appear Sabanes-Oxley has prevented even a single case of corporate malfeasance. Our recent financial crisis does not seem to have been impeded one single bit. But it is a measure of how out of touch some observers seem to be that required accounting for financial obligations is considered a political act.