AT&T, Others Mull Dropping Health Coverage

Major U.S. companies, including AT&T Inc. and Deere & Co., are examining whether they should drop health care coverage for their employees because it would be cheaper to pay a penalty to the government under President Obama's health reform.

The news, reported by Fortune after the magazine obtained company documents, would be a stunning shift that potentially sets a precedent for other corporations. Such a shift would unravel the employer-based health plan that many workers rely on. It also would seriously drive up the government's cost to cover more Americans.

Fortune obtained the documents that were sent to a congressional committee investigating why companies like AT&T and Deere were reporting what seemed like over-size costs related to a closed tax loophole for companies providing drug benefits to insured retirees. In addition to AT&T and Deere, Caterpillar Inc. and Verizon Communications Inc. also provided documents showing they were considering ending employee health insurance.

The documents were sent to Congressman Henry Waxman's House Energy and Commerce Committee, but the Democrat decided not to hold hearings on the corporate charges related to the retiree tax issue. Now we see why. If Obama's reform has the unintended consequence of big companies dropping their insurance plans, the whole health care system would be in for a major shock.

Consulting firm Hewitt prepared a report for Verizon that seems to nudge the company toward dropping its insurance plan.

Though federal penalties under Obamacare for not employing a company's workers "are material, they are modest when compared to the average cost of health care," according to a Hewitt document quoted by Fortune. "Employers may consider exiting the health care market and send employees to the Exchanges" (a reference to government-run exchanges set up by the Obama plan).

Verizon tells Fortune it isn't "considering or even contemplating" the Hewitt recommendation. And to be fair, these are only analyses conducted by each company. There could be a serious backlash to dropping an important employee benefit like health care.

Helen Darling, president of the National Business Group on Health, tells me that employers would risk recruiting efforts if they decided to drop health benefits. Health care has risen in importance over the last several years as prospective employees assess whether they want to take a job.

"Health care is the No. 1 factor in deciding whether to accept a job or stay in a job," she says. "I don't think that's going to change any time soon."