Applecare does not cover cracked screens, but you can still bring the phone to an apple store and get a replacement by paying. Where did/do you work that your at&t store policy for iPhones is to turn people to third parties?
From my customer's viewpoint its a policy that has been in place since the original iPhone since I know quite a few people who have had to pay with all generations of phones, and they happened months after purchasing said phones. If you're referring to people trying to get warranty options, then perhaps we're talking about two different things.