Health Bill Primer - Overview

Health Bill Primer - Overview

Here is a breakdown of the new bill passed yesterday for healthcare.

This was prepared by our head analyst.

Senior Investment Strategist
Trust and Wealth Services

Subject: Health Bill Primer - Overview
Date: Mon, 22 Mar 2010 10:43:15 -0500

There is plenty of noise around the passage of the Health Care Bill late yesterday. The Left makes it out as the biggest accomplishment since The New Deal was enacted by FDR. The Right thinks that yesterday marked the day when the USA turned into the USSA (United Socialist States of America). Like usual, the legislation probably falls somewhere well away from these two extremes. Like any bill, there are some winners and losers. The WSJ and ISI do a nice job of summarizing some of the key points, something I’ve tried to simplify below for client consumption:

Chronological Progression of Changes:

2010

* Subsidies begin for small businesses to provide coverage for employees.
* Insurance companies barred from denying coverage to children with pre-existing illness.
* Children can stay on policies of their parents until 26th birthday.

2011

* Long-term care program enacted. Pay premiums into the system for five years to be eligible for support payments when needed.
* Drug makers start to face annual fee of $2.5 billion (rises in subsequent years).

2013

* New Medicare taxes enacted for couples making more than $250k a year. Goes from 1.45% to 2.35%. New tax on income from dividends and interest for Medicare enacted (3.8%).
* Tax of 2.9% imposed on sale of medical devices.

2014

* Exchanges created for people without healthcare coverage and small businesses to shop for plans.
* Insurance companies barred from denying coverage to anyone for pre-existing conditions.
* Requirement begins for everyone to have health care coverage.
* Insurance industry must pay annual fee of $8 billion (rises in subsequent years).

2018

* Excise tax of 40% imposed on high value health care plans. Value of these starts at $27,500 for family coverage.


Interesting “Fallout”

* Indoor Tanning Services get a new 10% tax imposed (Sorry, Rosener!).
* Lifetime benefit caps will be banned.
* Limits amount you can put in tax-free flexible spending account at $2,500 a year by 2013.


Plenty of debate about who the winners and losers are in this bill. The bill is so long in its duration and has so many phase-ins that the final points won’t be tallied until the end of the decade. What we will have for a time in the health care sector is some uncertainty, and we know how stocks react to that. Here is a shot at scoring out this bill early on.

Winners:

* Drug Companies – Surprise! They are all up nicely today. They’ve been supporting the bill all the way through. Yes, they will be subject to a special tax, but everyone will be insured and have coverage for prescription drugs. Biotechs are also a winner as generic competition remains barred from duplicating biotech drugs maintain 12 years of patent protection. Don’t shed a tear for generics, though, they will still do well with a new group of cost conscious insured customers.
* Distributors/Disposable Medical Products – Becton a perfect example here. More people seeking health benefits means more syringes, gauze, microscopes, etc. and they are taking none of the heat with industry specific taxes.


Mixed Bag:

* Medicaid HMOs – Not all insurance companies will be losers. Depends on what type of insurance you offer. Many more new customers for those involved in Medicaid. Still questions as to what reimbursement rates will be and what types of profits will be allowed.
* Quality of Health Care – Patient load to increase for doctors and hospitals, but in a nice change: they’ll get paid for most services rendered. Of note, illegal immigrants will not be allowed to buy policies on the exchange. Emergency care must still be extended to them, however. Reimbursement rates still likely to be under fire as desire for cost savings at the government level will be high.


Losers:

* Traditional HMOs - Could have been worse. Taxes on the industry are pushed off until 2014. Positives largely end there. Bill doesn’t address industry’s largest concern: spiraling health care costs. Not being able to deny coverage will also increase costs. Will be under massive political scrutiny and extensive regulation. Virtually will have profits capped.
* Upper Income Individuals/Investors – Medicare taxes go up for high income individuals. Previously untaxed areas of income from investments (dividends/interest) will be taxed. ISI calls this “a massive subsidy for low and middle income Americans” and the upper class will be the ones paying for it.


One final thought from the D.C. folks at ISI. They think the political fallout of this will be interesting. The bill was largely opposed by the public. With little measurable happening with the bill before the mid-term elections, those that voted for it may be placing themselves in a difficult place with their voters.