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WASHINGTON — Federal Reserve chairman, Ben S. Bernarke, said on 9/15 that it was “very likely” that the recession had ended. He cautioned that it would be many months before unemployment rates would drop significantly.
“From a technical perspective, the recession is very likely over at this point,” he said, adding that “it’s still going to feel like a very weak economy for some time, as many people will still find that their job security and their employment status is not what they wish it was.”
The gingerly optimistic evaluation came at the end of a speech by Mr. Bernanke at the Brookings Institution on the anniversary of the market crisis that was precipitated by the downfall of the investment bank Lehman Brothers.
Mr. Bernanke said the consensus of forecasters was for moderate growth for the rest of this year and next, particularly as credit markets thaw, consumer confidence takes time to heal, and the federal government begins to unwind a series of federal spending and lending programs intended to mend the economy.
The committee of economists at the National Bureau of Economic Research often spends many months sifting through economic trends before declaring the beginning and end dates of a recession.
For policy makers in Washington the more important question than the actual date of the end of the recession will be when to begin unwinding the plethora of lending programs that were hastily created in response to the crisis.
Mr. Bernanke and other top officials, including the Treasury secretary, Timothy F. Geithner, have warned that winding down the programs immaturely could lead to another round of problems.
Referencing the Great Depression, historians now generally agree that, the early withdrawal of government programs in the 1930s led to deeper economic problems throughout that decade.
On the other hand, waiting too long could fuel significant price increases and lead to a return of destructive levels of inflation.
Within his speech, Mr. Bernanke repeated his broad defense of the extraordinary rescue efforts by the central bank, the United States government and other foreign powers over the last year.
“Without these speedy and forceful actions, last October’s panic would likely have continued to intensify, or major financial firms would have failed, and the entire global financial system would have been at serious risk,” Mr. Bernanke said. “We cannot know for sure what the economic effects of these events would have been, but what we know about the effects of financial crises suggests that the resulting global downturn could have been extraordinarily deep and protracted.”
Citations: The New York Times, Stephen Labaton
Blog posted by Laura Westhoff
Share prices follow the lead of markets around the world
Here is an interesting article I found about stocks.
http://www.msnbc.msn.com/id/3683270/ns/business-stocks_and_economy/
citation: Associated Press www.msnbc.com
blog posted by Laura Westhoff
Is the recovery imminent? Or already underway?
Signs point to a rebound. As this recession emerged, many economists felt that it would only fade away when the sector where it all began healed itself. It was in late 2006 when the U.S. real estate bubble began to pop, setting off a chain reaction of shocks that hurt homeowners, lenders, and the entire U.S. economy.
Three years later, we have new hope in the real estate sector – and the numbers to support it.
Existing home sales rose 7.2% in July. This was not only the largest monthly gain ever recorded, but the fourth consecutive monthly gain. As the National Association of Realtors noted, the last time residential resales increased for four straight months was in June 2004. Additionally, the number of existing home sales in July 2009 was greater than a year earlier – and that hasn’t happened since November 2005.1
Existing home prices seem to be moving north. In late August, the S&P/Case-Shiller Home Price Index brought more good news. Prices in 18 of 20 major U.S. housing markets improved in June. On top of that, the Federal Housing Finance Agency’s home price index gained 0.5% in June, on the heels of a revised 0.6% May gain.2
Wellesley College economics professor Karl E. Case (the Case in Case-Shiller) was delighted. “When I saw these numbers, I danced a jig,” he told the New York Times. “It appears that the housing market is stabilizing quicker than people thought it would.”
New home sales jumped an amazing 9.6% in July. Guess what: that was the fourth straight monthly increase. The Commerce Department put the seasonally adjusted annual sales rate at 433,000 – the strongest sales pace since September 2008. New home sales increased by an astonishing 16.2% in the South in July. When you lower prices enough, someone will buy.3
Not only that, equilibrium is slowly being restored in terms of supply and demand. At the end of July, the Commerce Department estimated that 271,000 new homes were for sale in the U.S. – the smallest number since March 1993. At the end of June, there was an 8.5-month supply of new homes on the market; in January, there was a 12.4-month supply.3 So inventory is being cleared out. That would seem to warrant a revival in home construction.
The statistics on housing starts bear this out. Single-family housing starts increased for the fifth consecutive month in July.4
Mortgage rates are still low. On August 27, interest rates on conventional 30-year fixed-rate mortgages were averaging 5.14%, according to Freddie Mac’s weekly nationwide survey. Contrast that with 2006-2007, when rates on a 30-year FRM averaged more than 6.3%.5,6
The real leading indicators may be in real estate. David Berson, chief economist at California mortgage insurer PMI Group, has tracked real estate market recoveries in relation to the seven American recessions since 1960. He has concluded that all of these recoveries were characterized by – or driven by – gains in housing starts and home sales. On average, his findings indicate that residential resales start improving four months prior to the end of a recession. In the average recovery, single-family housing starts improved for seven months in a row, and new home sales improved for eight straight months.7
Here in late August, new and existing home sales have both increased for four straight months, and single-family housing starts have improved for the last five months.
As Zip Realty’s Patrick Lashinsky told Voice of America, “Affordability is at an all-time high. You have home prices that have dropped 25-30%. You have interest rates at very low amounts and you have consumers who have been waiting to buy. Combine that with the $8,000 tax credit you get if you're a first-time buyer, and it's creating a solid demand.” Here’s hoping that demand brings about a great and prompt economic recovery.8
«representativename» is a Representative with [BROKER/DEALER NAME HERE] and may be reached at «representativewebsite», «representativephone» or «representativeemail».
These are the views of Peter Montoya Inc., and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional.
Citations.
1 realtor.org/press_room/news_releases/2009/08/strong_uptrend [8/21/09]
2 nytimes.com/2009/08/26/business/economy/26econ.html?em [8/26/09]
3 washingtonpost.com/wp-dyn/content/article/2009/08/26/AR2009082601876.html?hpid=topnews [8/26/09]
4 bloomberg.com/apps/news?pid=20601087&sid=afRgwPDl9Yk4 [8/18/09]
5 freddiemac.com/pmms/ [8/27/09]
6 freddiemac.com/pmms/pmms30.htm [8/27/09]
7 bloomberg.com/apps/news?pid=20601109&sid=asbePeKxZbVs [8/27/09]
8 voanews.com/english/2009-08-24-voa41.cfm [8/24/09]
Here’s why it can be a good idea.
You may have read that you don’t need to buy life insurance early in life. That’s not necessarily true. In fact, getting a policy before midlife may prove wise. Relatively few people opt for life insurance coverage between the ages of 18 and 45, yet there are compelling reasons to get life insurance within this window of time.
The key question. Are you supporting individuals whose livelihood depends on your income? If the answer is yes, it’s time to look at life insurance.
Now, you may be saying: shouldn’t I wait to get a policy? Why should I pay premiums when I have so many other checks to write? Well, the reluctance is understandable: the perception is that life insurance is for old people, and when you’re 30 or 35, chances are you’ve got a long, great life ahead of you. But in financial terms, here is why this can be advantageous.
You’ve got your health. Typically, Americans shop for a life insurance policy in the middle of their life spans – when they are in their forties or fifties. At that time, they may have already fallen into the grip of bad habits (smoking, obesity, heavy drinking) and diabetes, heart disease, cancer or HIV may have entered their health picture. All these conditions can jack up premiums or make it harder to get a policy.
The cost is relatively cheap. Okay, maybe you won’t have to contend with any of the above health risks at 45 or 50 – but who knows? Buying a term or permanent life policy early in life, before you have to encounter any of these problems, should allow you to pay less expensive premiums. (Presuming you don’t face recurring risks to your health and safety today.)
Did you know that premiums for standard-risk term life insurance fell 50% between 1994 and 2007?1 Premiums have been getting cheaper and cheaper for new term life policyholders, partly because the mortality rate has dropped over the decades. In fact, the non-profit Insurance Information Institute says term insurance premiums have fallen by more than 4% per year since 2000, and the premiums on cash value policies are averaging roughly 5% lower today compared to a decade ago.2
Why would young singles need life insurance? Good question. Some financial consultants will tell you there is no pressing reason for it. Yet if you are single, buying a term life policy (or even a permanent life policy) early on could bring you a better deal and potentially guarantee your insurability.
Maybe it’s time. Time passes, things change, and so does your need for insurance. Even if you are insured, it’s important to keep up with change – as an example, the Insurance Information Institute estimates that about a third of families don’t update their life insurance coverage after a new baby comes home.1
If you’re young and you haven’t yet talked to a qualified insurance advisor, think about doing so today – you may be pleasantly surprised how affordable life insurance can be.
These are the views of Peter Montoya Inc., and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Professional for further information.
1 msnbc.msn.com/id/18926723/ [5/29/07]
2 registeredrep.com/wealthmanagement/insurance/people_living_longer_0819/ [8/19/08]
This worksheet can help you separate needs from wants.
If you’re unemployed or underemployed as a result of this recession, you’ve no doubt given some thought to budgeting. Establishing that budget is the next step.
See where your money goes. You know the amount of your mortgage or rent payment, but do you know how much you’re spending on food, gas, entertainment, or clothing? This is how hard-earned or long-saved money leaks away.
Track every buck. That’s right: for a month or a week, make a note of where every dollar you spend goes. That’s every dollar that leaves your bank account. Specify every expense you can. (Don’t forget to include the fractional cost of your annual expenses per month or per week.)
Where the savings are. You might be relieved to see how much you can save per month if you cut back in five areas or creature comforts – comforts you might be quite comfortable without.
1) Eating out. A morning coffee … a fast-food lunch … a takeout meal or dinner in a restaurant … what does this all add up to? Possibly $20-25 a day, 5-7 days a week. Cutting back on some or all of this could save you hundreds of dollars a month. While these purchases may have been habit when you worked, you can avoid or limit them now.
2) Entertainment. This means movies, concerts, plays, and other social events and amusements. You don’t have to deprive yourself altogether here, but consider how expensive some of these costs (concert and theatre tickets) can be. You might easily save $100 or more per month.
3) Autos. You can find families in this country that own three or four cars. (Three or four SUVs, even.) Gas may be cheaper at the moment, but auto repairs are never cheap. What if you sold a car and cut back to one car? It might require a little rescheduling on the part of your spouse or family, but you could gain some cash and lose some expenses (and possibly some repair bills you would otherwise pay down the road).
4 & 5) Cable and Internet service. Do you really need a high-speed connection? Do you need 68 channels? These are other areas where you can cut back and save big.
A worksheet. Here is a worksheet that can help you keep track of your non-deductible expenses per month. (Some expenses are often deductible, such as charitable contributions, mortgage interest, alimony, and certain health and business expenses – check with your tax advisor to see what you might be able to deduct.)
Auto/Transportation
Gas ____
Service/Repair Costs ____
Bus/train fare ____
Clothing
Clothing purchases ____
Laundry/dry cleaning ____
Daily Living
Babysitting/child care ____
Eating out ____
Groceries ____
Personal supplies ____
Allowances ____
Dues/Subscriptions
Club memberships ____
Newspaper subscription ____
Child sports expenses ____
Education
Music lessons ____
School lunches ____
Tuition ____
Other education expenses ____
Entertainment
CDs/DVDs (buy, rent) ____
Books/magazines ____
Dates ____
Hobby costs ____
Other entertainments ____
Household expenses
Furnishings ____
Appliances ____
Improvements ____
Home maintenance ____
Association dues ____
Other household expenses ____
Insurance
Auto insurance ____
Homeowner insurance ____
Life insurance ____
Rental insurance ____
Other insurance ____
Lawn care
Plant/agricultural expenses ____
Equipment expenses ____
Other lawn care expenses ____
Financial payments
Auto loan ____
Credit card payments ____
Education loans ____
Other loans ____
Bank fees ____
Postage ____
Other financial payments ____
Rent or mortgage payment ____
Utilities
Electricity ____
Internet ____
Heating oil/fuel ____
Telephone ____
Trash collection ____
Water/sewer ____
Other utility costs
Vacation/Travel ____
Do not stop investing. You still need to do that if at all possible. Keep contributing to the accounts poised to compound over time, so that you may use them to fund part of your retirement someday and pursue your long-term financial goals.
A tool to transfer wealth to the next generation at lower tax cost.
Family limited partnerships, or FLPs, let you make gifts of partnership interests to family members while you maintain control over the underlying assets.
In estate planning, FLPs can be very useful. Successful families create them with three objectives in mind: lowering income and estate taxes, enabling family business continuity via orderly transfer of ownership interests, and establishing a degree of liability protection for limited partners.1
Earlier in the decade, the IRS scrutinized and challenged a few FLPs. But in the last few years, tax courts have issued some notable and favorable rulings on behalf of such partnerships. As income taxes could soon rise for the wealthiest Americans, and as President Obama’s budget calls for the estate tax to be restored at 45% next year for estates worth more than $3.5 million ($7 million for couples), families with business might want to look into FLPs.2
The FLP structure. A FLP usually starts out with married business owners placing assets into a partnership. Initially, the parents are both the general partners and limited partners. In time, they gift limited partnership interests to sons or daughters.
What does this mean? Basically, it means that the couple has relinquished ownership of 1-99% of the assets in the partnership, but still controls 100% of these assets. The limited partners (the kids) have no voice when it comes to running the business. The parents always control 100% of the FLP assets because they are the general partners. (The children would only become general partners upon the death of both parents.)3
What the FLP accomplishes. Let’s present a hypothetical example, in which parents (general partners) gift a limited partnership interest and give up ownership of 75% of assets within the partnership. This 75% of assets is now outside of their taxable estates. All future appreciation of these assets will also occur outside of their taxable estates. Yes, they have made a gift to their kids, so here comes a gift tax – but the general partners can use the unified gift and estate tax credit to pay it off.3
If the parents transfer 75% of their ownership interest to the limited partners, 75% of the income generated by the FLP will be taxed to the limited partners.3 If you are in a higher tax bracket than your children, you can see the value of this.
Besides potentially sizable tax savings, the FLP also offers asset protection through the limited partnership entity. Where 100% of this couple’s assets were once vulnerable to “creditors and predators”, now only the 25% they directly own will be exposed. The 75% of partnership assets they transferred to the limited partnership interests are now out of the bullseye.3
A FLP should have one purpose. It is a tool to help families plan to sustain family businesses over two generations. Any deviation from that purpose might someday draw the attention of the IRS. For example, it is a bad idea to transfer real estate into a FLP or to use the FLP like a piggy bank to pay for personal expenses. It should not appear that the FLP has just been set up to save taxes – if you can show demonstrable non-tax reasons for creating it, so much the better.2
FLPs are not limited to family members. In fact, FLPs may include an attorney, a bank, or another independent third party as a general partner that may later be replaced or removed from the partnership. This third party can decide on valuations, discounts and distributions.4
The threat of H.R. 436. One bill currently before the House Committee on Ways and Means may impact FLPs. The Certain Estate Tax Relief Act of 2009, introduced by Rep. Earl Pomeroy (D-ND), contains a provision with regard to the valuation of minority interests in businesses. It would deny minority valuation discounts in situations where members of the same family retain control of the asset.5,6
Perhaps by the time you read this, H.R. 436 will have died in committee – but its presence is certainly worth noting if you are considering starting a FLP.
If you have thought about a FLP, move carefully. Before you go about creating a FLP, confer with the tax and legal professionals you retain, or find trusted tax and legal professionals through referral. With their input, you can determine whether the FLP is an appropriate asset transfer and estate planning tool for your family.
1360financialliteracy.org/Life+Stages/Entrepreneurs/FAQs/Transferring+or+selling+a+business/What+is+a+family+limited+partnership+and+will+it+help+reduce+estate+taxes.htm [4/21/09]
2 online.wsj.com/article/SB123914092330498579.html [4/12/09]
3 articles.moneycentral.msn.com/Taxes/TaxShelters/ProtectYourFamilyWithPartnership.aspx [12/16/08]
4 nysscpa.org/trustedprof/804/tp13.htm [8/04]
5 govtrack.us/congress/bill.xpd?bill=h111-436 [4/18/09]
6 wealthstrategiesjournal.com/articles/2009/03/the-estate-analyst-hr-436-reta.html [3/4/09]
(UPDATED aUGUST 2009)
An option you can use to develop your retirement income plan while you work.
Can you withdraw money from your 401(k) while you are still employed? Not everyone should; not everyone can. However, if you can, it may mean that you can effectively implement part of your retirement income plan before you retire.
If your 401(k) plan permits it, you can take an in-service withdrawal and redirect some of your 401(k) funds into another investment vehicle that offers you income guarantees.
The reasons why. A non-hardship withdrawal can provide you with early access to a portion of your retirement assets, freeing you to manage them as you wish. If the mix of funds in your 401(k) have taken a big hit lately, you might be wondering how some of those assets would do if they were invested differently.
The self-directed IRA option. Some people are withdrawing assets from qualified retirement plans such as 401(k)s and place them in self-directed IRAs. An SD-IRA can allow you to invest your assets in real estate, commodities, and other sectors indirectly correlated or uncorrelated to stocks. While many kinds of IRAs can be converted to self-directed IRAs, you need to have an IRA custodian that will allow an SD-IRA and let you make non-traditional investments using IRA assets. This IRA custodian has to be a registered trust company.1
You can take a self-directed IRA one step further and set up an IRA LLC. With an IRA LLC, you have “checkbook” control and don’t need your IRA custodian’s approval to make non-traditional investments.1,2
Many SD-IRA owners invest in income property or other forms of real estate. Contrary to public perception, IRA assets may be invested in real estate and other options besides securities (providing your IRA custodian allows this). There are some notable prohibitions: IRS Code Section 401 IRC 408(a)(3) prohibits life insurance contracts from being held in IRAs, and IRS Publication 590 states that your IRA will be hit with additional taxes if you invest in collectibles.3,4
The 72(t) strategy to avoid the early withdrawal penalty. If you are still working and pull money out of your 401(k) before age 59½, you will almost certainly pay a 10% early withdrawal penalty plus income taxes on the money you take out.5 But you might be able to make early withdrawals with the help of IRS Rule 72(t).
Rule 72(t), based on life expectancy, lets you schedule fixed income withdrawals for five years or until you reach 59-1/2, whichever is longer.6 It lets you receive fixed, equal payments according to IRS calculations.
First things first: make sure you can do this. Talk with your employee benefits officer at work, and see that the Summary Plan Description (SPD) permits non-hardship withdrawals. Talk with your financial or tax advisor to make sure this is an appropriate move for you given your overall financial plan. If you know you’ll need more retirement income, there can be real merit to reinvesting early withdrawals from a 401(k) in vehicles that generate it.
1 ira123.com/self-directed-ira-faq/#question4 [6/9/09]
2 realtytimes.com/rtpages/20060320_irarealestate.htm [3/20/06]
3 law.cornell.edu/uscode/26/usc_sec_26_00000408----000-.html [1/3/07]
4 irs.gov/publications/p590/ch01.html#en_US_publink10006396 [2008]
5 money.cnn.com/magazines/moneymag/money101/lesson23/index.htm [11/10/08]
6 money.cnn.com/2001/06/08/strategies/q_askexperts_disabled/ [6/8/01]
Who would fund the reforms? Would there really be a “death list”?
Sorting out the possibilities, facts and misconceptions.
The town hall debates over health care reform have ignited Americans like few recent issues. Discourses have become shouting matches. Away from the noise, here is a roundup of where things currently stand.
Who would pay for all this? Over the next 10 years, the federal government will need (by President Obama’s estimation) $950 billion to fund its health care programs. As planned, roughly a third of the money will be raised through increased revenues (i.e., limiting tax deductions for the wealthiest Americans) and two-thirds of it is supposed to come from reallocations of taxpayer money the federal government is already scheduled to receive.1 A coalition of pharmaceutical industry CEOs met with the President in July and have since pledged $80 billion in cost savings over the coming decade to help pay for the reform.2
Would Medicare be cut? Republicans and Democrats disagree. “Nobody is talking about trying to change Medicare benefits,” President Obama stated during a July AARP teleconference. “What we want to do is to eliminate some of the waste that is being paid for out of the Medicare trust fund.” The non-partisan Congressional Budget Office figures that the House of Representatives version of the bill would trim Medicare spending by $500 billion across the next decade with no impact on Medicare benefits. AARP claims that “none of the health care reform proposals being considered by Congress would cut Medicare benefits or increase your out-of-pocket costs for Medicare services.” However, in an August 15 Republican Party radio address, Sen. Orrin Hatch contended that “hundreds of billions of dollars” will be cut from Medicare and used to “expand a financially-strapped Medicaid program and create another government-run plan.”3,4
Would this run up the deficit further? The Congressional Budget Office says yes. It forecasts that President Obama’s reforms would add $239 billion to the federal deficit. Few on Capitol Hill think the reform effort could pay for itself.5
Would health care be rationed? That’s what ex-Alaska Governor Sarah Palin contended in a Facebook post. The potential Republican presidential candidate stated that the reforms would lead to a system that would “refuse to allocate medical resources to the elderly, the infirm, and the disabled who have less economic potential.” Democrats and other supporters of the reforms counter her claim by saying that the current health care system already features “rationed” care dictated by health insurance company bureaucrats.6
Would there really be “death panels”? Earlier this month, Palin contended that the President’s health care reform proposals included “death panels” that would decide if seriously ill patients would live or die. In the eyes of many legislators, Palin was wildly misinterpreting a provision in the health care reform bill that would allow doctors to offer voluntary consultations about living wills, hospice care, health care directives and pain medication to patients and loved ones facing end-of-life decisions. (If the reforms pass, Medicare would pay physicians to provide this consulting.) The Senate Finance Committee has dropped this idea from its version of the proposed legislation; it remains in the House version.7
Would the government (and taxpayer dollars) pay for abortions? It is uncertain. In one variant of the health care reform bill, abortions would have to be available via at least one insurance plan; however, Democrats say any abortions would be paid through patient premiums.5
Would undocumented immigrants get free health care? On the CBS Evening News, Sen. Ben Cardin (D-MD) was heard stating, “Illegal aliens will not be in this bill, period, the end.” As currently written, the legislation states that only those lawfully present in the United States can qualify for health coverage. Yet what if one family member is in America legally, but others aren’t? Could his or her relatives become eligible? Republicans say that the proposed legislation offers no way to effectively stop undocumented immigrants from applying for health care benefits.5
The debate rages on. Politically, the health care reform effort seems poised to end up being the story of the year – and the contention and negotiation will certainly last into fall. Stay tuned.
These are the views of Peter Montoya Inc., and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent financial professional.
1 baltimoresun.com/health/health-care/bal-health care-faq,0,5260471.story [8/14/09]
2 baltimoresun.com/business/bal-bz.pharma14aug14,0,5384283.story [8/14/09]
3 politics.theatlantic.com/2009/08/gop_dems_want_to_spend_money_to_cut_medicare.php [8/14/09]
4 factcheck.org/2009/08/seven-falsehoods-about-health-care/ [8/14/09]
5 cbsnews.com/stories/2009/08/12/eveningnews/main5237960.shtml [8/12/09]
6 politicalticker.blogs.cnn.com/2009/08/14/palin-warns-of-disturbing-health-care-rationing/ [8/14/09]
7 latimes.com/news/nationworld/nation/la-na-health-end-of-life14-2009aug14,0,4670272.story [8/14/09]
President Obama’s vision may be carried out – in part.
The U.S. is the only developed nation without a comprehensive national health care system. President Barack Obama aims to change all that with a massive reform bill to bring health insurance to 46 million Americans without it over the next 10 years.
Huge reform, huge questions. How much will this cost? Who will pay for it? Could the reform put private health insurers out of business? Will it work? These are just some of the questions swirling around the proposed legislation.
Huge compromises. The most controversial aspects of the bill may soon be watered down. Part of that has to do with cost; part of it has to do with appeasing the private sector. The Senate and House must reconcile different versions of the bill. In the House version, 95% of Americans would be eligible for health coverage; in the Senate version, 97% of Americans would qualify.1,2
Possibly kaput: the government-sponsored option for health insurance. Could private health insurance companies hope to compete with the federal government? Private insurers railed against their proposed new competitor – and last week, Sen. Kent Conrad (D-ND), a Senate Finance Committee member, told Bloomberg News that talk was shifting away from that concept in the Senate and toward nonprofit cooperatives. The House version of the bill still includes the government-run plan.1
Also possibly kaput: mandatory health insurance for employees. In the original conception, businesses would pay federal fines in the future if they refused to provide health coverage to workers. According to Sen. Conrad, the Senate version of the bill would ask businesses to shoulder a portion of the cost of Medicaid coverage received by their workers, or 100% of the Medicaid tab for certain workers poor enough to qualify for a tax credit that could help them buy health insurance.1
If the bill passes, the amount of employer-provided health benefits exempt from income taxation might be limited. Sen. Max Baucus (D-MT), current chair of the Senate Finance Committee, has suggested a $15,000-$17,000 ceiling on that tax exclusion.1
Definitely disliked: the proposals to fiddle with private Medicare plans. The Obama administration has set goals of ending overpayments to Medicare Advantage, which it claims would save the government $177 billion by 2019. In that same time frame, it also wants to use Medicare reimbursements to reduce preventable hospital readmissions – for a conceived $25 billion in additional savings.3 The Obama reforms would also give Medicaid members a bigger prescription drug discount, while reducing that discount for high-income Medicare members.4
In testimony before the House energy and commerce panel, Blue Cross and Blue Shield Association senior VP Alissa Fox contended that any cuts in Medicare funding “would cause millions of Medicare Advantage enrollees to lose their coverage and lead to significant reductions in benefits or increases in premiums for millions more.” In addition, Blue Cross, Blue Shield and America’s Health Plan recently presented a letter to Sen. Ted Kennedy (D-MA), referencing a Milliman study that found the average family of four pays $1,700 a year more than they should in health insurance premiums due to Medicare and Medicaid underpaying hospitals and physicians.1,5
Obama claimed before the American Medical Association that his reforms “will actually extend the life of the Medicare Trust Fund by 7 years and reduce premiums for Medicare beneficiaries by roughly $43 billion over 10 years.”3
The proposed total costs: apparently almost $1 trillion. Sen. Baucus and Sen. Chuck Grassley (R-IA) worked in late June with the Senate Finance Committee to whittle down the House’s $1.6 trillion version of the bill to less than $1 trillion.2
Who pays for it? Tax increases and savings would fund the reforms. More specifically, the President has talked about cutting back the value of the itemized deductions available to the wealthiest American taxpayers. House Ways and Means subcommittee chair Rep. Richard Neal (D-MA) said other ideas a payroll tax and a value-added tax. The Senate seems to prefer the idea of taxing employee health benefits.6
More change likely to come. “We are still early in this process," Obama noted Thursday. “We have not drawn lines in the sand.” Expect those sands to shift further as legislators and lobbyists exert pressures on another of the President’s ambitious reforms in July.
1 bloomberg.com/apps/news?pid=20601103&sid=aki1sLcOe4GM [6/26/09]
2 cnn.com/2009/POLITICS/06/25/health.care.proposal/ [6/25/09]
3 usatoday.com/news/washington/2009-06-15-obama-speech-text_N.htm [6/25/09]
4 forbes.com/2009/03/03/obama-health-plan-lifestyle-health_obama_health_budget.html [3/3/09]
5 usatoday.com/news/washington/2009-06-23-health-congress_N.htm [6/23/09]
5 washingtonpost.com/wp-dyn/content/article/2009/06/18/AR2009061804053.html [6/18/09]