IN THIS ISSUE:
1. Rasmussen: 61% Favor Repeal of Healthcare Law
2. ObamaCare Officially Kicked-off on September 23
3. ObamaCare is Even Worse Than Critics Thought
4. Will Government Put Insurers Out of Business?
5. Income Tax on “Rich” Headed Higher Than in Clinton-era
Phase I of the Patient Protection & Affordable Care Act of 2010, better known as “ObamaCare,” officially kicked in on September 23, six months after it was signed into law. This week, we look at the main provisions that went into effect late last month, and what they may mean for health insurers, healthcare providers and you.
Interestingly, just three days before Phase I of ObamaCare went into effect, the latest Rasmussen poll found that 61% of likely voters want ObamaCare repealed. That’s the highest number in several months. So much for Americans coming to like ObamaCare once they learn more about it, as the president suggested.
We have learned quite a lot about ObamaCare since Nancy Pelosi told us late last year that “We have to pass this bill to see what’s in it.” As it turns out, ObamaCare is even worse than its critics suggested before it was signed into law. I’ll give you the details on that as we go along.
We’ve also learnedthat the Obama administration is going to strong-arm the insurance industry for raising healthcare premiums, regardless of how much healthcare services increase in costs. Health & Human Services Secretary Kathleen Sebelius took the health insurance industry to task in a letter in early September that basically threatened to put them out of business if they raise their rates too much or blame the increases on ObamaCare.
Finally, it remains to be seen whether Congress will pass a new law to extend the Bush tax cuts before they expire at the end of this year. Of course, there remains the question of whether the tax cuts will expire only for those individuals making over $200,000 and couples making over $250,000.
Currently, the maximum tax rate is 35%, and most people believe it will rise to 39.6% if the tax cuts for the “rich” expire. However, I am going to show you how, by 2013, the top rate will go much higher than in the Clinton-era, despite Obama’s claims otherwise.
Rasmussen: 61% Favor Repeal of Healthcare Law
When President Obama and the Congress rammed the new healthcare law down the throats of Americans last March, well over 50% of Americans opposed it, according to various polls. People were particularly angry at the way the bill was so narrowly passed, what with all the backroom deals and legislative chicanery that went on to get just enough votes to pass it.
At the time of ObamaCare’s passage, pollster Scott Rasmussen found that 53% of likely voters opposed the new healthcare law and wanted it repealed. President Obama, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi all promised that the American people would come to like ObamaCare the more they came to understand it. Oops!
On September 20, just three days before ObamaCare Phase I kicked in, Rasmussen reported that 61% of likely voters now favor repeal of the new national healthcare law. That number was up eight points from the prior survey and was the highest level of opposition measured since late May when 63% wanted it repealed. Only 33% of likely voters opposed the repeal of ObamaCare in Rasmussen’s September 20 poll.
While the president, Reid and Pelosi promised that we would come to embrace ObamaCare as we learned more about it, just the opposite is happening. The more we collectively learn about government healthcare, the more we dislike it.
As noted above, the initial provisions of ObamaCare kicked in on September 23, six months after the president signed the bill into law. I will summarize these initial provisions as we go along. While some of these provisions are nice things to have, they will result in higher health insurance premiums and the loss of certain types of health insurance altogether.
As I repeatedly warned before ObamaCare became law, there was a lot not to like in that massive 2,400-page bill. As more of the details become known, and the initial provisions of the bill are kicking in, opposition to ObamaCare should continue to rise. I will bring you the specifics just below.
ObamaCare Officially Kicked-off on September 23
With very little coverage by the mainstream media, ObamaCare officially began on September 23. Since a majority of Americans want ObamaCare repealed, and since we are less than a month from the election, most in the media avoided making a big deal of it. Most of the Democrats running for re-election that voted for ObamaCare are keeping silent as well.
Here is a summary of the initial provisions of ObamaCare that kicked in late last month from Kaiser Health News:
- Insurers must allow parents to keep their adult children up to age 26 on their health plan and those young adults can’t be charged more than any other dependent. Some insurers began this policy early during the summer. BUT: This doesn’t begin until your new plan year begins – for many, that will be Jan. 1, 2011. And, if your child has an offer of coverage from an employer, he/she might not be able to be on your plan.
- Insurers can’t charge co-pays or deductibles for preventive services such as breast cancer screening and cholesterol tests. BUT: “Grandfathered” plans – those that don’t make major changes from the previous plan year – don’t have to follow this requirement. [See my June 29 E-Letter to learn why this grandfather provision may be nothing more than an illusion for many employers.]
- Insurers must cover children up to age 19 with a pre-existing medical condition. New individual plans and all group plans – such as those you get at work – can’t refuse to cover a child. BUT: “Grandfathered” individual health plans can refuse to cover a child.
- Insurers cannot cancel coverage once you get sick, a practice known as “rescission.” BUT: If you committed outright fraud and intentionally hid something, your insurer can refuse to pay.
- Consumers get direct access to physicians: You – not your insurance company – decide which primary physician, gynecologist, obstetrician and pediatrician you see among your plan’s list of approved providers. BUT: The usual obstacles remain, like whether the doctor is taking new patients or has an appointment opening available.
- No additional payments can be required for out-of-network emergency room care: Insurers cannot require higher co-payments or deductibles if you have a medical emergency and seek treatment at an emergency room that’s not in your health insurance plan. BUT: Once again, “grandfathered” plans are exempted.
- Annual limits on coverage will be going away. BUT: First, they’ll be raised to $750,000 for all employer plans and new individual plans, rising to $1.25 million after Sept. 23 of 2011 and then to $2 million the following September.
- No lifetime limits: All plans, even “grandfathered” plans, will be prohibited from setting dollar limits on lifetime coverage. NO “But” on this one!
Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.
While the following provisions of the health law have been around for a while they’re worth noting, as well:
- High-Risk Pools: Designed to help people who have been uninsured for six months get coverage. Each state has its own pool.
- Help to Companies Paying for Early Retirees: More than 2,000 employers and unions have applied for government grants to cover up to 80 percent of retirees’ medical costs between $15,000 and $90,000 until they can qualify for Medicare coverage.
- Small Business Tax Credits: Small businesses with 25 or fewer full-time employees who earn an average yearly salary of $50,000 or less will qualify for a tax credit of up to 35 percent of the cost of premiums. That credit will rise to 50 percent in 2014. To qualify, businesses must cover at least 50 percent of the cost of workers’ insurance.
ObamaCare is Even Worse Than Critics Thought
There are many reasons why it was so difficult to pass the massive healthcare reform bill back in March. The concept of government-run healthcare, accounting for almost one-fifth of the US economy, is completely foreign to most Americans. That is why a majority of people oppose it to this day. We have not warmed up to the idea as Obama and the liberals in Congress expected.
There were many promises made about how nationalized healthcare would make our lives better, improve the quality of care and reduce costs. But most Americans knew well that you can’t add over 32 million uninsured people to the healthcare rolls without increasing costs and rationing care. There are only so many doctors and so many hospitals, after all.
As the first of the ObamaCare provisions officially kicked in late last month, the realities of government-run healthcare are becoming obvious. Here are just a few:
1. ObamaCare will not decrease healthcare costs for the government or consumers. According to the Centers for Medicare and Medicade Services, it will increase costs by at least $300 billion over the 10 years 2011-2020 – despite the fact that it will collect premiums for five years before any benefits are paid out.
In May, the Congressional Budget Office estimated that ObamaCare will add $134 billion to the federal deficit in 2010-2019. But former CBO director Douglas Holtz-Eakin calculates that ObamaCare will add $500 billion to the deficit over the same period. The CBO also estimated in May that the overall cost for ObamaCare will be at least $940 billion over the same period. Some private estimates put the actual cost of ObamaCare at close to $2 trillion over the next 10 years.
2. ObamaCare will increase insurance premiums – in some places, it already has. Insurers, suddenly forced to cover clients’ children until age 26, have little choice but to raise premiums, and most are expected to go up by 1%-9% in 2011. Obama's only method of preventing massive rate increases so far has been to threaten insurers.
3. As I explained in my June 29 E-Letter, ObamaCarewon’t allow employees or most small businesses to keep the coverage they have and like – as Obama promised. By the Obama administration’s own estimates (after the bill passed), as many as 69% of employees, 80% of small businesses and 64% of large businesses will be forced to change their health insurance coverage, most likely to more expensive plans.
4. ObamaCare imposes a huge non-medical tax compliance burden on small business. It will require them to mail IRS 1099 tax forms to every vendor – including corporations – from whom they make purchases of more than $600 in a year, with duplicate forms going to the Internal Revenue Service ( click here for more details). This will result in millions of new 1099 forms that small businesses will have to send out starting in 2012.
Like so much else in the 2,400-page bill, our senators and representatives were apparently unaware of this when they passed the measure. The last thing small businesses need right now is another tax reporting burden disguised as a way to help pay for ObamaCare.
5. ObamaCare forces states to guarantee not only treatment of, but also payment for, indigent Medicaid patients. With many doctors now refusing to take Medicaid (because they lose money doing so), cash-strapped states could be sued and ordered to increase reimbursement rates beyond their means. Never mind that ObamaCare cuts almost $600 billion over 10 years from Medicare funding and will force millions of seniors out of the popular Medicare Advantage program by 2019.
6. ObamaCare allows the IRS to confiscate part or all of your tax refund if you do not purchase a qualified health insurance plan. The bill provides funding 16,000 new IRS agents to make sure Americans follow the new rules.
These are but a few of the troubling provisions of ObamaCare. If you wonder why so many American voters are angry at the president and Congress, you need to look no further than ObamaCare, which will be a pivotal issue in the upcoming elections.
Will Government Put Insurers Out of Business?
Everyone reading this will remember that President Obama promised that his healthcare plan would “bend the healthcare cost curve downward.” Most of us didn’t believe that promise, and the CBO has since confirmed that healthcare costs will rise under ObamaCare. Even the president admitted it in a press conference on September 10:
“As a consequence of us getting 30 million additional people health care, at the margins that’s going to increase our costs—we knew that.”
That wasn’t how he sold the plan, but, anyway, that’s a truism – costs will go up. Here’s another: The White House was always going to blame insurance companies for any cost increases, even when its own policies caused them.
Witness Health Secretary Kathleen Sebelius’s September 9 letter to America’s Health Insurance Plans, the industry trade group, which was a thuggish message even by her standards. The HHS Secretary wrote that some insurers have been attributing part of their 2011 premium increases to ObamaCare and warned that “there will be zero tolerance for this type of misinformation and unjustified rate increases.”
President Obama himself warned that if insurance companies raise their rates too much (according to whom?), they would be barred from participating in ObamaCare’s subsidized “insurance exchanges” when they come on line in 2014. That would almost certainly drive them out of business. Who knows, maybe that was the plan to begin with! President Obama has said that the new healthcare law was a good step toward an eventual single-payer system.
Income Tax on “Rich” Headed Higher Than in Clinton-era
Everyone reading this is no doubt aware that there is a fierce debate ongoing about whether to extend the Bush tax cuts which automatically expire at the end of this year. President Obama has said for months that he favors extending the Bush tax cuts for all but those individuals making over $200,000 and couples making over $250,000 a year.
But with the prospect of a Republican tidal wave in the November mid-term elections, even many Democrats up for re-election have had a change of heart and want all of the Bush tax cuts extended, even for those making over $200K/$250K a year. Yet despite the likelihood of a GOP landslide in November, Obama remains steadfast in raising taxes on the “rich.”
President Obama repeatedly reminds us that extending the Bush tax cuts for the rich will cost the government upwards of $700 billion over the next 10 years, so he says. The rich, he says, need to pay their “fair share” even though they already pay over 50% of all income taxes paid.
Obama also emphasizes that eliminating the Bush tax cuts for the rich would only mean that their “tax rates would just go back to where they were under President Clinton.” And he reminds us that the economy grew at a rapid clip during the Clinton years, adding tens of millions of new jobs. I have a real problem with this analogy on several levels!
As I have written in the recent past, those making $200/$250K a year, many of whom are entrepreneurs, account for over 50% of all new job creation. Raising their taxes from 35% currently to 39.6% if the Bush tax cuts expire is not a good way to stimulate the economy. In fact, it will have just the opposite effect.
But there’s more to this story that you need to know. Thanks to a little-known provision in the new healthcare law, the president’s plan will push the top tax rates for most types of income above Clinton-era levels starting next year and even more in 2013. In other words, the rich are already in for another tax increase whether the Bush tax cuts are extended or not.
If the Bush high-income rate reductions expire, it will be the Obama administration’s second move to increase the top marginal tax rates.
In 2010, the top income tax rate bracket for ordinary income is 35%. Besides wages and interest income, this income category includes profits from pass-through business firms, such as sole proprietorships, partnerships, and S-corporations. Under the president’s proposal, the top tax bracket will rise to 39.6% on January 1 on all these entities, for those making over $200K/$250K. But it gets worse.
Another stealth provision of Obama’s proposed federal budget for 2011would phase out high-income taxpayers’ itemized deductions starting next year, adding another 1.2% (average) to the effective tax rate for many high-income earners, bringing it to as much as 40.8%.
Most people don’t think about Medicare taxes, currently at 2.9%, (paid half by the employer and half by the employee), but it is a tax nonetheless. Under ObamaCare, this tax will increase to 3.8% in 2013 for those making over $200K/$250K. But for purposes of this discussion, we will not include the Medicare tax as it is very complicated.
Also in 2013, a new 3.8% tax, called the Unearned Income Medicare Contribution (UIMC), will be imposed on high-income taxpayers’ interest income and most of their pass-through business income that’s not currently subject to the Medicare tax. If you are subject to this tax and the phase-out of itemized deductions, your tax rate will be far beyond the top rate of 39.6% under Clinton. But it gets even worse.
A similar pattern holds for capital gains taxes. Under the president’s plan, in 2011 and 2012, the top rate on gains – currently at 15% – will go to 20%beginning on January 1, 2011. And it gets even worse. Starting in 2013, capital gains will also be hit by the 3.8% UIMC tax noted above, thus pushing the new cap gains rate as high as 23.8% for some who make over $200K/$250K.
Under the president’s proposal, virtually all of top earners’ ordinary income will be taxed at 44.6 percent, starting in 2013. We’re not just going back to the Clinton-era rates of 40.8 and 43.7 percent.
Dividends are on track to see a much steeper tax increase starting next year. President Obama’s proposed federal budget for fiscal 2011 calls for the dividend tax rate to go from 15% to 20% in 2011, but Congress quickly changed that to 39.6% for those making over $200K/$250K. Congress has yet to pass Obama’s 2011 budget, as amended, but it likely will at some point just ahead. If nothing else changes, the top dividend tax rate will rise from 15% today to 39.6% in 2011 and 2012, with the 3.8% UIMC tax pushing the rate that much higher starting in 2013 for those making over $200K/$250K.
In short, if the Bush high-income tax rates expire and the budget for fiscal 2011 passes as amended, it will be the Obama administration’s and congressional lawmakers’ second move to increase the top marginal tax rates. The first shoe has already dropped, in the form of the UIMC tax which is scheduled to take effect in 2013.
It’s bad enough that this tax received little attention or scrutiny before it became law, with not a single congressional hearing to explore its economic impact. Worse yet, you never hear President Obama or the Democrats mention this 3.8% tax when they talk about marginal tax rates. No wonder!
I could go into a lengthy discussion about why these significant tax increases will be bad for the economy and job creation. But I suspect that most of my readers already have their minds made up regarding whether or not the government should raise taxes on those making over $200/$250K – the supposedly “rich.”
I will make one other observation, however. It galls me to hear President Obama say that by extending the Bush tax cuts for all but the wealthy, he is giving “immediate tax relief for the middle class.” If the Bush tax cuts are extended, that is no relief – rather, it will be no change at all since tax rates will remain the same as they are today, except for those making over $200K/$250K.
Obama can say whatever he wants, but at the end of the day, it’s up to Congress to pass a new law to extend the Bush tax cuts, or they expire automatically on January 1 – for everyone. It now appears that Congress won’t take this matter up until after the November 2 election. There are going to be a LOT of angry lame ducks in Washington after the election, and they have a lot of work to do before the holidays. So, don’t bank on the tax cuts being extended for anyone until you see it!
Very best regards,
Gary D. Halbert
Don’t let ObamaCare reach its third birthday.
Health care law’s massive, hidden tax change
"Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc. are not affiliated with nor do they endorse, sponsor or recommend any product or service advertised herein, unless otherwise specifically noted."
Forecasts & Trends is published by ProFutures, Inc., and Gary D. Halbert is the editor of this publication. Information contained herein is taken from sources believed to be reliable, but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgment of Gary D. Halbert and may change at any time without written notice, and ProFutures assumes no duty to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Any references to products offered by Halbert Wealth Management are not a solicitation for any investment. Such offer or solicitation can only be made by way of Halbert Wealth Management’s Form ADV Part II, complete disclosures regarding the product and otherwise in accordance with applicable securities laws. Readers are urged to check with their investment counselors and review all disclosures before making a decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Gary D. Halbert, ProFutures, Inc. and all affiliated companies, InvestorsInsight, their officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Securities trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results.
10-05-2010 2:22 PM
Gary D. Halbert