Barack Obama’s healthcare reform proposal that will serve as the basis for discussion at the bipartisan summit later this week still faces major challenges. In fact, many expect Thursday’s meeting will likely be mostly political theatre.
Some even believe the Democrat plan, which calls for insurance regulation at the federal level instead of by states, is intended to go down in defeat. That’s because it is highly unlikely that the Republicans will approve a bill that layers Federal premium regulation on top of already existing state regulations and puts additional taxes on capital gains, interest, rents and royalties of high earners. The plan calls for those new taxes to fund Medicare, in addition to increasing the Medicare payroll tax hike.
The proposal also includes the creation of a subsidy to buy insurance through an exchange and expands funding for state Medicaid programs. The Federal Government would pay 100% of costs for newly eligible individuals from 2014 to 2017, 95% in 2018 to 2019, and 90% in 2020 and beyond.
The suggestion is that the Republicans will take the blame if nothing is accomplished. But passing no bill is better than comprimising on a bad one that does little to control costs, sets new taxes in motion and hurts capital formation, which affects job growth, says Larry Jeddeloh, chief investment officer of Minnesota-based TIS Group.
Instead, the Republicans will try to push the reset button on reform and propose market-based solutions. At the same time, they will likely raise the fear among voters over a “government takeover” and mandates for both individuals and employers.
As far as asking the pharma companies to foot $1-billion in fees in order to control costs, that’s a drop in the bucket in the context of overall Medicare spending, Mr. Jeddeloh writes in Thursday’s edition of the Market Intelligence Report.
He also wonders if capital gains taxes will eventually rise above personal tax rates.
“New taxes have a way of never going away, just growing larger. The scope for expanding taxes on unearned income is massive, given future costs of Medicare, if Medicare is not reformed.”
Nonetheless, the bill would be less bad for Managed Care stocks than what was feared after the January 19 elections in Massachusetts, according to Citigroup’s Charles Boorady. The sector, which consists of health insurers and related businesses such as pharmacy benefit managers, peaked after the Republican victory and has fallen 12% since.
The analyst expects money will rotate into healthcare stocks after federal healthcare reform efforts conclude, possibly by mid-April. He maintains a positive rating on the Managed Care sector and anticipate they will continue to rebound in 2010 from historically low valuations in 2009.
Obama’s proposal combines the Senate and House bills, but the American people seem pretty clear that they don’t want either to pass in their current form. In the end, expect something labeled “reform” to pass. But it will surely be scaled back from the 2,000-plus page bills passed in the House and Senate.
Photo: U.S. President Barack Obama speaks from the Rose Garden during an event with medical doctors at the White House on October 5, 2009 in Washington, DC. Obama met wtih doctors from all over the country who are joining him in pushing for health insurance reform. (Win McNamee/Getty Images)