Friday, December 8, 2023

Personal Finance: Health Care Reform

As you are no doubt aware, the Patient Protection and Affordable Care Act was passed by Congress and signed into law on March 23 by the President.

If you’re a supporter of the bill, you will point to its “benefits”: Poor adults will get Medicaid. Kids will be able to stay on their parent’s policy until they turn 26. Low-income families will get federal subsidies to buy insurance.  Small businesses may get tax credits. Seniors get additional prescription drug coverage. People with pre-existing medical conditions can’t be denied or dropped.

While it may be hard to be against those things, the question is how those things are going to be paid for. Here’s how: the “wealthy” will pay higher taxes; businesses with 50 or more employees will have to insure them or pay a penalty; individuals will pay a fine if they don’t buy insurance; premiums will rise for many who already have insurance; and seniors with Medicare Advantage policies could lose those plans or pay more to keep them.

Regardless of how you feel about the bill, the fact is that taxes are going up, and not necessarily just on the “wealthy.”

The healthcare plan is estimated to cost $940 billion over the next decade, almost a billion a year.  That’s a lot of money, isn’t it?  But consider this:  In 1967, the House Ways and Means Committee predicted that the new Medicare program, launched the previous year, would cost about $12 billion in 1990. Actual Medicare spending in 1990 was $110 billion – off by nearly a factor of 10.  So what will the new healthcare plan really cost?  Impossible to predict, but probably way more than the projections. 

A few highlights on paying for the new bill:

• Dividends, currently taxed at the top rate of 15%, will be taxed as ordinary income, with the top rate scheduled to rise to 39.6% (up from 35%)

• All investment earnings will be taxed an additional 3.8%. This includes capital gains, dividends, and interest.

• Starting in 2018, family insurance plans valued at more than $27,500 ($10,200 for individuals) will pay a 40% tax above that level.

• Pharmaceutical manufacturers will pay an annual fee based on their market share starting in 2011.

• Health insurers will pay an annual fee based on their market share starting in 2014.

• A 2.3% excise tax on the sale of medical devices will start in 2013.

• A 10% excise tax on indoor tanning services goes into effect this July.

How will all these businesses afford the additional tax? They won’t. You’ll pay it, through higher prices.

How’s that for hope and change?  If you want to discuss how this new legislation might affect your financial planning, please call me.

Ken Kendall, CFP, CLU
Kendall Financial LLC
3208 Long Prairie Rd. Suite C
Flower Mound, TX  75022

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