After almost a year of dramatic debate, the President has achieved his goal of a major reform to the health care system.  We’ve had clients ask what this might mean for them.  Here are a few changes to expect:

Taxes: Starting in 2013, the Medicare tax rate on households with income over $250,000 will be increased from 1.45% to 2.35%.  In addition, a new 3.8% Medicare tax will be introduced for the same group on investment income.

Currently, the tax rate on dividends and long-term capital gains is 15%.  In 2011, those rates are expected to rise to 20% for households earning over $250,000 and with the new Medicare tax, these rates will rise to 23.8% for the same group.  Under current tax law, investors get to keep 85% of the income stream from taxable stock market investments.  Under this new law this will be cut by 8.8% to 76.2%, reducing the value of the income stream by 10.4%.  This change is worth noting for many reasons and should be planned for when considering investment strategies and income planning.  However, this is also not unfamiliar territory.  On average over the past 40 years the maximum federal tax rate on capital gains was 24.7% and the maximum tax rate on dividends was 44.6%.

Even before this bill became law, we began reminding clients why it makes sense to own tax-efficient investments and funds that keep capital gains low by having low turnover.  No doubt that the investment philosophies we have been advocates’ of (low-cost & tax-efficient) will grow in popularity as a result of the new law.

For Doctors: This bill will expand demand without much effort to rein in costs.  A combination of federal subsidies and mandates will increase the pool of insured, and while there are many constraints preventing insurance companies from limiting coverage, there are few which limit how much they can charge for it.

According to the Congressional Budget Office, the passage of this legislation would reduce federal deficits by a cumulative $143 billion between 2010 and 2019 and by greater amounts in the following decade.  These estimates are just that, estimates and should be taken with a hearty grain of salt.  It is obviously very hard to estimate what total federal heath care spending will be over the next decade.  Whatever else is said about this bill, there is nothing in it to suggest a reduction in either the quantity or prices of health care services consumed.

· There is no meaningful malpractice reform.

· There is no reduction in drug patent lives.

· There is no compulsion to force insurance companies to compete across state lines.

· There is no effort to limit health care procedures in the last year of life.

· There is no movement in the direction of forcing consumers to confront the cost of services at the point of purchase.

· There are no meaningful incentives to persuade the insured to take better care of their own health.