President’s Message
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Bruce Doole
May 18th, 2010
In this month’s newsletter, Nate and I will be discussing how and when the new healthcare act will be affecting the two highest concentrations of clients we serve: small business owners, and retirees (and pre-retirees). We’ve provided you with a timeline and the likely affect the bill will have on your financial situation. If you would like a more detailed analysis on how the changes will affect your financial plan specifically, please call our office and we’ll schedule a time to discuss the new law with you further.
Immediately through 2010
Beginning on June 23rd, 2010, small businesses will be eligible to receive a tax credit of up to 35% of the premiums on the health care plans they offer to their employees. This tax credit will be increased up to 50% of employee’s health care costs by 2014. The full credit will be available to firms with 10 or fewer employees with average annual wages of $25,000, or firms with 25 or fewer employees and average wages of $50,000. Also, beginning in June, companies with early retirees will see a new system of reinsurance established to offset the expensive cost of coverage for benefits of those between the ages of 55 and 64.
2011 through 2013
At the beginning of 2011, small businesses will be able to create a simplified Cafeteria Plan aimed at providing tax-free benefits to employees. This plan would ease the administrative burden that many small business struggle through when sponsoring a plan for their employees. Also, all employers will be required to enroll their employees in a new national public long-term care program, unless the employee opts out. And finally, businesses paying providers of property and services of $600 or more during the year will now be required to file information reports with the IRS.
2014
Waiting periods for employees to be eligible for health coverage will be 60 days, and 90 day wait periods will be prohibited. All plans must be offered on a guarantee issue basis, preexisting condition limitations are prohibited as are annual and lifetime limits. Fees for large companies (over 50 employees) will begin to be assessed if they do not provide insurance to their employees. The fee will be $2,000 per full-time employees excluding the first 30 employees. Also, so-called “Cadillac Plans” will be subject to an excise tax of 40% on insurers and plan administrators for any health plan that exceeds $10,200 per year for individuals and $27,500 for family plans.
How Health Care Reform will affect your Financial Plan
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Nathaniel Ritchison
May 18th, 2010
On March 23rd, President Barack Obama signed into law the farthest reaching and most significant social program since the creation of Medicare and Medicaid by Lyndon Johnson some 45 years ago. The Patient Protection and Affordable Care Act can best be described as a fix to the existing healthcare system and not a replacement. It doesn’t create a government run universal plan like Canada or turn doctors into government employees like Great Britain. Instead, the law attempts to increase the access to coverage of the neediest and often excluded segments of our population- the unhealthy and low income- by increasing the taxes and cost of healthcare of the youngest and most affluent of our population.
The government’s aim to cap the ever increasing cost of healthcare at no more than 10% of disposable income, which in 2007 stood at 16.6% compared to less than 10% in 1981, is a highly controversial one. I’m going to discuss the points of the act that will have significant impact on planning for your financial independence. For a detailed look at the law visit the Kaiser Family Foundation at http://www.kff.org/healthreform/basics.cfm, or schedule a time with us to go over in detail how the changes will affect your financial plan specifically.
Who will be affected this year…
Uninsured individuals and children with pre-existing conditions will have access to a temporary high-risk pool of insurance with subsidized premiums until state insurance exchanges are established in 2014.
Dependents can be included on their custodian’s health plan up to age 26.
Insurers will no longer be permitted to impose lifetime benefit limits on plans and will begin to be subject to restrictions on their use of annual limits until 2014 when limits will be entirely removed. In addition, the act also outlaws the practice of rescission- finding a reason to revoke coverage after you get sick.
Medicare recipients will receive a $250 rebate check if they enter the Part D “donut hole”- a coverage gap between $2,830 and $6,440 in total drug spending- until it is eliminated in 2020. Beginning in 2011, generics will begin to be covered and brand-name drugs will be subject to a 50% discount in the donut hole. Also, beginning in 2011 some Medicare Advantage plans (for-profit Medicare supplement plans) will see their government subsidy disappear- forcing plans to leave the market and seniors to switch.
Voluntary options for long-term care insurance will be available beginning in 2011. Funded by payroll deductions, this program provides a $50/day cash reimbursement for qualified long-term expenses after you’ve participated in the plan for at least 5 years.
2013, The year of the tax increase…
Increases to the Medicare payroll tax will bring the rate to 2.35%- an increase of 0.9%- for taxpayers with wages and earnings over $200,000 ($250,000 for married filing jointly).
A new tax on investment income will be assessed at 3.8% for taxpayers with an AGI over $200,000 ($250,000 for married filing jointly).
Contribution limits on Flexible Savings Account will be capped out at $2,500 and indexed for inflation in subsequent years.
Increases to the medical expense threshold for itemized deductions will lift the rate from 7.5% to 10% of AGI. The threshold will be increased for those over 65 in 2016.
In 2014 and beyond…
Health Insurance Exchanges are established in each state, or geographic region, allowing people to comparison shop for standardized health packages. Tax credits will be available for people with income above the Medicaid eligibility and below 400% of poverty who are not eligible for or offered other acceptable coverage. Credits will be applied to monthly premiums to ensure that people can obtain affordable coverage. The health packages will limit the insurer’s ability to charge higher rates due to gender or other factors. Premiums will instead be based on age (no more than 3:1), geography, family size, and tobacco use.
Penalties for not having health care coverage will be phased-in beginning 2014 and fully in force by 2016. The penalty- aimed at bringing younger, healthier participants into the plans to bring down the risk pool for the insurers- will be capped at $695 per person and $2,250 per family (not to exceed 2.5% of income) and indexed for inflation in subsequent years. Individuals will not be penalized if affordable coverage is not available.
President’s Message
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Bruce Doole
April 12th, 2010
THE NEW HEALTHCARE…
was the dominant news item in the market this quarter, ultimately resulting in Congress passing the largest Healthcare legislation in the past few decades. It will affect almost every American in one way or another, either requiring healthcare coverage for the millions who currently don’t have coverage (similar to auto insurance), changing premium costs to consumers and businesses, new prescription benefits to seniors and new regulations on insurance companies. We will be providing a complete analysis on what this means for you in our upcoming newsletter.
In the markets, we ended on a high note this quarter after a bit of a bumpy ride. In this newsletter, however, I want to highlight another success story and continue to show how we help you make positive changes to your financial situation in all aspects of financial planning and money management. Last month we talked about cash flow and budgeting in our first example and advanced retirement planning in the second. In this month’s success story, we’re focusing on estate and legacy planning as you’ll read below.
SUCCESS STORY: BUILDING A FIRM FOUNDATION
A financially independent client asked us to help figure out how to sustain a legacy to their children and grandchildren. They had been funding a garden dedicated to their mother for years but wanted to pass down this responsibility to future generations. We discussed a number of solutions but decided that the best solution for them was a private foundation that could provide an endowment into perpetuity. Ultimately this commitment allowed the garden volunteers and staff to go out to the surrounding community, leverage their endowment, and create an entirely new garden and experience for everyone who would subsequently enjoy it. This is exactly what we try to help our clients achieve. We want them to help serve as catalysts to achieve something that has more impact than they could ever provide on their own. In fact, the foundation this client set up has funded over a dozen charities and projects in other states across the country.
On another note, one of the most enduring benefits of the foundation to the family is the yearly family foundation meetings. They truly bring the family together by helping others. We also helped the family realize some very valuable tax benefits by helping them donate assets that would have otherwise incurred large tax liabilities, which significantly offset taxes on their retirement income. By allowing their children to research and create ideas to help allocate foundation money to causes where they could make an impact, the foundation has grown in scope to encompass something far more than the founders could have ever imagined. It goes to show that a small, well thought out investment, can pay huge dividends for years to come.
We will continue to provide you with examples of success stories to show not only how you can improve your financial situation but also help your family positively impact others. We look forward to meeting with you to discuss these issues in our annual or semi-annual meetings with you and/or in our monthly coaching calls. Have a wonderful spring and summer ahead.
