Corporate Earnings Sink Due to Health Care Reform
Be careful, 2010 corporate earnings may be unusually weak due to new taxes and higher costs thanks to health care reform legislation passed last weekend. Several large companies have already gone public, forecasting charges ranging from $100 million to as much as $1 billion.
ATT Loses Big
One of the biggest losers of the health care reform legislation passed by Congress and signed into law by Barack Obama is none other than ATT which stands to accept an annual charge of as much as $1 billion. Other companies, such as Deere and Co will lose $150 million to new taxes. Caterpillar will lose as much as $100 million in profits.
Where Companies are Losing
The biggest change in the health care reform act signed into law is the changes to the tax code. Subsidies to businesses that give coverage to seniors and retirees for prescription drugs will now be taxable and as a result several large firms will post huge earnings charges in 2010 against higher taxes in 2011. While the problem will be short-lived as 2011 earnings calls will be revised, there is little doubt employees and customers of these firms will lose equally. Some companies are already scaling down their insurance plans while others will pass the new costs onto those that buy their products.
Short Term Only
Luckily for most, the costs of health care reform legislation will affect all large firms equally and will be priced into products and corporate earnings for 2011 and beyond. However, in the short term, corporate earnings are sure to come up weak, and could remain weaker as prices are adjusted to increase profits, passing on the costs to consumers.
Some Winners
Some winners in the health care reform legislation are prescription manufacturers, insurance companies and corporate health care providers which will add 30 million new American customers in 2014 when the bill finally begins its major operations. Starting in 2011, every American will be required by law to have health insurance and large firms and even some small businesses, namely construction businesses, will be forced to offer health care insurance to their employees.
