Despite many investors’ fears about health care reform hurting the market, the Dow Jones Industrial Average rose 44 points, and the S&P Health Care index rose 0.6% the day after the House passed the bill. Furthermore, the market is up overall since then, now approaching 11,000 on the Dow. Some Wall Street experts predict the bill, which will provide health insurance to an additional 32 million Americans, will boost demand for prescription drugs and medical care, offsetting the tens of billions that health care firms will pay to subsidize the plan. Of course, many key provisions don’t take effect until 2014, so the longer-term impact of the bill might not be known for years.
You will see dramatic health care changes over the next decade, thanks to the new legislation. Some highlights by year:
2010:
Small businesses that pay half employees’ insurance premiums will get a tax credit of up to 35% of this contribution.
A temporary reinsurance program will help employers provide health care coverage for retirees over age 55 who are ineligible for Medicare.
Medicare patients who face a gap in prescription drug coverage will receive a one-year, $250 rebate to help pay for medication.
Individuals with pre-existing medical conditions who have been uninsured for at least six months will qualify for health coverage through a temporary high-risk insurance pool.
Insurance companies can no longer deny coverage to children with pre-existing conditions and must cover dependent children up to age 26. They also cannot limit lifetime payouts to individuals or rescind coverage except in case of fraud. Finally, they must cover preventive services such as children’s immunizations and women’s cancer screenings.
People who use indoor tanning salons will pay a 10% tax on the service.
2011:
People who spend money from health care savings accounts on ineligible medical expenses will pay a 20% penalty, twice as much as in the past.
Community health centers will receive a total funding increase of $11 billion to provide medical care to patients who cannot afford it.
Seniors who face a gap in drug coverage will receive a 50% discount on brand name prescriptions. More subsidies will be phased in through 2020, when the coverage gap will be closed.
Primary care doctors and general surgeons practicing in areas that lack primary care doctors will receive a 10% bonus under Medicare.
Employees who contribute to a voluntary long-term care program for at least five years will receive a $50-a-day cash benefit to pay for long-term care.
Drugmakers will pay new annual fees, totaling $2.5 billion and steadily increasing each year to total $4.2 billion in 2018.
Health insurance companies must provide rebates to enrollees if they spend less than 85% of premium dollars on health care, versus administrative costs.
2012-13:
Employers will no longer be able to set contribution limits for flexible savings accounts for health care. Instead, the bill sets the limit at $2,500.
Unreimbursed medical expenses will have to exceed 10% of adjusted gross income in order to be deductible. The former threshold was 7.5% of adjusted gross income.
Individuals who earn more than $200,000 and families who earn more than $250,000 will pay a higher Medicare tax – 2.35% up from 1.45%.
For the first time, a 3.8% Medicare tax will be imposed on unearned income.
2014:
Americans who do not buy health insurance will be subject to fines of $95 per person, up to the greater of $285 per family or 1% of taxable household income. Fines increase each year; in 2016, they will be $695 per person, up to the greater of $2,085 per family or 2.5% of taxable household income. After 2016, fines will be adjusted for inflation.
Americans and qualifying legal residents can receive federal subsidies, based on household income, to offset the cost of insurance.
Companies with at least 50 employees that don’t provide affordable coverage will pay a fine if any full-time workers qualify for federal health care subsidies.
Medicaid will increase income eligibility to 133% of federal poverty, or $29,327 for a family of four.
Insurance companies will pay an annual fee, totaling $8 billion. The fees increase each year, reaching $14.3 billion in 2018.
Uninsured people and small business will be able to comparison shop for policies through a state-based health care exchange.
2017:
Health care plans that cost more than $10,200 for individual coverage and $27,500 for family coverage will be subject to a 40% excise tax.
By now, you have probably received a request to complete the U.S. Census survey. Conducted every ten years, the census data is extremely important. For example, it determines the number of House representatives per state, how much federal money goes to local programs, and the right locations for schools, roads, and other public facilities. Real estate agents and potential residents use the data to learn about a neighborhood. Individual business owners also use census data to gauge industry competition, for example, or identify new market opportunities.
Here’s a Census Bureau fact you may or may not find interesting - 15% of Americans are “middle aged”. Specifically, 23 million fall between the ages 45 and 49, and another 22 million are between ages 50 and 54. As the Baby Boomers continue to age, this pig in the python will have a dramatic effect on the economy, markets, and politics of America.
It’s hard to believe that with only the first quarter behind us, many companies will begin the seemingly never-ending task of budgeting for the upcoming year. The Social Security wage base looks as if it will hold at $106,800 with no change in 2011, due to low inflation the past couple of years. As a result, there may not be much of a cost of living increase for people drawing Social Security. Congress could still change the Social Security law; however, this is unlikely since it is a controversial issue in an election year.
According to an analysis by the Brookings Institution, Tampa Bay has one of the nation’s weakest economies. Of the top 100 U.S. metro areas, the Tampa-St. Petersburg-Clearwater region is near the bottom in several key measures: for example, it ranks 89th in drop in employment from its pre-recession peak; 89th in drop in economic output from its peak; 89th in drop in housing prices over one year; 93rd in rise in unemployment over the past year. Seven other Florida metro areas also were among the 19 weakest performing economies. By contrast, Texas accounts for five spots among the 20 strongest-performing metros.
The recent FDIC quarterly analysis also had sobering news: past-due bank loan levels in Florida are as high as last year, roughly a fourth of Florida's community banks are considered in troubled financial condition, and personal bankruptcies statewide are still running at a relatively high rate.
2009 was interesting, as we saw the market fall early in the year, then rebound dramatically over the last 9.5 months. During this turmoil, Americans paid down significant debt and increased their personal savings rate to 4.6%, the highest in 13 years and almost four times the savings rate of 1.2% in 2008. On the other hand, while 4.6% sounds good, keep in mind that in 1984, Americans were saving 10.4% of their personal income. (Source: Bureau of Economic Analysis)
More people are paying cash for houses as investors return to the market. The National Association of Realtors reports that 26% of home sales in January were all-cash transactions, up from 18% at the same time last year. The trend is seen as an indication that investors are returning to the market and want to increase their cash flow by avoiding mortgage interest. Specifically, 17% of home purchases in January were made by investors, up from 15% in December and 12% in November.
The yield on the 10-year Treasury note reached 3.91% last week, its highest level since June of last year. The 52-week high is 3.94%, reached on June 10, 2009. If it gets above that level, experts see little to stop it from rising to the mid-2008 high near 4.25%. The upward rate pressure results from relatively weak demand at government auctions, due to lower foreign demand and worries that Washington’s spending will force the U.S. to borrow more in the future.
The IRS has been given more money for audits but is barely increasing the number of returns it audits. During fiscal 2009, the IRS audited 1.03% of all personal returns, up from 1.01% in 2008 but the same as 2007. However, the IRS increased audits of those with incomes of $1 million or more, from 5.57% in 2008 to 6.42% in 2009. The service audited one of every 97 returns overall, compared to one out of every sixteen returns for those at the $1 million level. Given the pressure on revenue, you can expect that audits will become even more important to the government.
With the NCAA Final Four next weekend, it appears many readers may have money on the line... and may be betting at work. In a survey from Spherion, about half of workers admitted to having participated in an office pool; about half of those had bet on college basketball playoff brackets. Apparently, much of this occurs during office hours. Experts estimate the cost of lost productivity during March Madness is $1.8 billion…. and growing. For example, during the 2009 tournament, more than 7.5 million people watched NCAA March Madness videos on the CBSsports.com onDemand player – up 58% from 2008. And they watched 75% more hours of video and audio than in 2008. However, the fear of getting caught appears not to be increasing quite as rapidly: people clicked the “boss button” at CBSsports.com, which changes the computer screen, 2.77 million times in 2009, up only slightly compared to 2.5 million in 2008. Perhaps the boss is becoming more accommodating? Of the managers surveyed by Office Team, 56% felt that March Madness does not impact productivity, 41% thought it positively affects employee morale, and 22% thought it actually boosts workers’ output. Still, about a quarter of employers forbid gambling in writing, and another 10% have an unwritten or understood policy, according to a recent survey from the Society for Human Resource Management.
As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon.
RAY, KIM, ERIC, BRUCE, and LOU
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