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Everything You Need to Know About Obamacare

By Dan Caplinger and Ryan Katon The Affordable Care Act has been one of the most controversial pieces of legislation of the past several decades. Proponents point to the legislation, now colloquially known as Obamacare, as a hallmark of support for a basic human right for all Americans. Opponents see Obamacare as an unwelcome intrusion into the private health insurance market and an abridgment of basic American freedom. Those two groups have caused a huge debate over Obamacare, and it s not likely to get resolved any time soon. !ut one thing that everyone can agree on is that no matter what you think about Obamacare, it s going to have a widespread impact on you in many different ways. As a consumer of health care, you ll see the changes Obamacare will make in the way you get the medical care you need, as well as the way you get insurance coverage for your health care and how much you pay for it. As a ta"payer, you ll face the challenge of coming up with your share of the burden of paying for the overall cost of Obamacare. And as an investor, you ll find that many stocks both inside and outside the health#care sector will have their businesses transformed by the legislation. $n this special report, we ll focus on each of these three areas, giving you the insight you need to deal with and even potentially profit from Obamacare. !y moving past the rhetoric and sticking with facts, you ll be in a better position to make ob%ective, unemotional decisions to put yourself in the best position to use Obamacare to your advantage as thoroughly as possible. !ut first...

What does Obamacare mean for the health-care industry as a whole?

&et me '(yan) share an e"ample with you that should help you understand Obamacare a little better* $magine you sold lemonade for +, at a stand in your front yard. report/!toc" a#$i!or/o%amacare/page1&email'(#a)g(e))*gmai... 10/16/2013

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&et s say -.. people walk by your stand each day. And of those people, /. choose to buy... ,/ people don t... and ,/ people would be interested but could only afford a cup for +-. Then, one day, the government passes a law that requires everyone to buy lemonade. 0or your /. e"isting customers, they d continue to pay you the +, a cup they ve always paid. $n addition, though, you d capture +, a cup from the ,/ people who didn t want lemonade but now have to buy it. And for the ,/ who couldn t afford it, the government would pay you to offer lemonade at +-. $n other words, the government would be giving you more customers and paying you at the same time. A pretty attractive deal when you consider that your business would ve grown its revenues -..1 practically overnight. And that a simple piece of legislation would ve made you 2 and your investors 2 a heap of cash. 3ow to be fair, Obamacare doesn t really work like this. 0or one thing, the government has high hopes that the program will lead to lower costs for health insurance 2 to carry the lemonade analogy further, the law would set limits on your ability to charge more than your actual e"penses plus a reasonable profit rather than letting you keep selling at +,. 4oreover, while Obamacare s individual mandate calls for everyone to have insurance, people still have the alternative of not getting coverage and paying penalties instead. 5till, the likelihood is that many more people will buy insurance than before, and that could lead to big gains both for the companies that provide that insurance and the hospitals and other medical providers who serve newly insured patients. All that e"plains why we ve already seen numerous health#care stocks return as much as 7 !"#$ %&!'#$ and even '"!"# since the bill passed. 3ot only are they likely to benefit from huge numbers of new customers6 they re also going to reap profits from government subsidies as well 2 and that means a never# before#seen profit opportunity for investors like you and me... These landmark changes don t happen often. !ut when they do, you need to be ready 'and well informed7) if you want a piece of the profits. 5o stick with us and pay close attention to what 8an has to say about Obamacare s provisions... Then later, $ ll be back to give you the inside track on Obamacare s winning investment formula. report/!toc" a#$i!or/o%amacare/page1&email'(#a)g(e))*gmai... 10/16/2013

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What Your (ealth )nsurance Will *oo+ *i+e ,nder Obamacare

Obamacare s provisions promise that everyone will have individual health insurance, and the individual mandate within the legislation requires everyone to have that coverage or face potential penalties. 9et millions of Americans are worried about what their insurance policies will look like after Obamacare fully takes effect and whether the coverage those policies will provide will be better than what many of them already have. 3ot all of the details have been fleshed out yet. !ut early signs point to a few likely things you ll see from your health insurance when Obamacare s provisions take full effect.

! -hose without em.loyer-based grou. coverage now will li+ely get better benefits! -/EN0 -/A1KE/2 )s -3 0ead?
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One likely outcome of the Affordable Care Act is that the vast ma%ority of individual health insurance plans 2 as opposed to group plans that employers provide 2 will have to provide more comprehensive coverage than they do currently. A ,.-, study from researchers at The >niversity of Chicago found report/!toc" a#$i!or/o%amacare/page1&email'(#a)g(e))*gmai... 10/16/2013

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that among the roughly -? million Americans who have individual health coverage rather than group coverage through an employer or other organi@ation, more than half of those plans didn t provide enough benefits to qualify under Obamacare s standards. >nder Obamacare, those substandard plans will be replaced by newer coverage.A5ome preliminary figures from state health insurance e"changes show that in many states, that new coverage is coming with higher premiums, especially for those plans that provided much more limited benefits than will be required under the new law. Bhether better benefits will provide enough of an offset to result in lower overall costs will vary from person to person and across different policies. People who have minimal health e"penses will likely end up paying more overall, while those who use their health benefits more often could see cost savings under Obamacare plans.

%! -hose covered under em.loyer-.rovided .lans already have generally strong coverage!
The same study also e"amined people covered under group plans, typically through their employer. The differences in quality were staggering. The study authors divided different insurance policies into tiers based on how much of a patient s medical bills each policy would cover. $n group plans, almost two# thirds of members had policies that covered C.1 or more of their costs, compared to %ust ,1 of those who had to get their coverage individually. 4oreover, thanks to employer contributions, those in group plans paid less than half what individual#plan members paid in out#of#pocket costs. As a result, most people covered by their employers would probably prefer to keep their e"isting coverage. !ut many workers are afraid that employers might choose to discontinue offering health insurance of their own, deciding instead to let Obamacare s other provisions take care of their workers.

'! Whether em.loyers will continue .roviding coverage will de.end greatly on how health insurance e5changes loo+!
8espite fears of widespread employer abandonment of group health# insurance coverage, the ,.-, 3ational 5urvey of :mployer#5ponsored Dealth Plans from D( consulting firm 4ercer found that very few employers plan to cancel their health insurance benefits after Obamacare takes full effect. !ut smaller employers were much more likely to say they would cut coverage 2 with -E1 of employers with fewer than /.. employees planning health plan cuts compared to %ust E1 of employers with /.. or more workers. /free!report/"toc#!a$%i"or/o&a acare/page1'e ail()$a*g)e**+g ai... 10/16/2013

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0or many, the decision may well hinge on what the individual and small# business health insurance e"changes under Obamacare end up looking like. 5tates have the choice to run their own e"changes, but if they don t, the federal government will have e"changes to cover their residents. 4any states have already released some details about their e"changes, although others are still pending. Bith open enrollment in the e"changes still scheduled for Oct. -, ,.-F, it should be much clearer soon whether it will make sense for employers to drop coverage even in the face of penalties for some businesses that drop their plans, as well as the loss of ta" credits that some eligible businesses will get for providing coverage.

Waiting for the details

>nfortunately, there s still a lot up in the air about how Obamacare will work, especially as some states are still figuring out what they will offer their citi@ens under the law. Clearly, some people will get far better health insurance coverage under Obamacare than they do now. !ut some people will also end up paying more than they do now for coverage they d be %ust as happy to keep if they could.

(ow Obamacare 1hanged Your -a5es

As much as Obamacare will affect your medical care and your health insurance coverage, the effects don t stop there. The legislation also made ma%or changes to the ta" laws 2 with ramifications not %ust for this year but e"tending well into the future. &awmakers embedded several different ta" provisions into the broader Obamacare legislation. Those changes will have an impact on ta"payers at all income levels. Perhaps the biggest change in the law e"panded the ta" that workers currently pay for 4edicare to cover both higher amounts and different types of income. >ntil this year, workers paid -.?/1 of their wages in 4edicare withholding ta"es, with employers paying another -.?/1 out of their own pockets. 5elf# employed individuals paid the combined ,.G1 on their own. Although the amount of wages sub%ect to 4edicare ta" used to be limited in the same way as 5ocial 5ecurity withholding, that changed in -GG-, and by -GG?, the limits on wages sub%ect to 4edicare ta"ation were removed entirely. =oing forward, though, Obamacare imposes additional 4edicare ta"es on certain individuals. $n particular, two groups will be affected* /free!report/"toc#!a$%i"or/o&a acare/page1'e ail()$a*g)e**+g ai... 10/16/2013

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Joint filers with wages or other work-related earnings greater than $250,000 and singles earning more than $200,000 will have to pay an additional 0.9 percentage points in edicare ta!, "ringing their total to 2.#5$ for employees or #.%$ for self-employed workers. &mployers are s'pposed to handle this re('irement in their withholding, "'t for twoearner co'ples, that may prove impossi"le, as yo'r employer will have no knowledge of what yo'r spo'se earns. )hose with total ad*'sted gross incomes of more than $250,000 for *oint filers or $200,000 for singles will have edicare ta!es imposed on their investment income as well. +n whatever amo'nt of investments e!ceeds the $250,000 gross-income level, yo',ll have to pay the f'll #.%$ s'rta! yo'rself. )he net effect on high-income earners will "e to "ring total top ta! "rackets to -#.-$ . the #9./$ reg'lar ta! amo'nt pl's the #.%$ edicare ta!.

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)hose who earn less than these $200,000 and $250,000 thresholds sho'ldn,t ass'me that their ta!es will "e 'naffected "y +"amacare. 6ew limitations on fle!i"le spending arrangements have hit ta!payers of all income levels, limiting the amo'nt yo' can set aside ta!-free in a fle! plan to $2,500 per year. 7revio'sly, there was no technical 'pper limit, altho'gh most employers report/!toc" a#$i!or/o%amacare/page1&email'(#a)g(e))*gmai... 10/16/2013

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imposed a $5,000 ma!im'm. 8't for those who have high levels of predicta"le medical e!penses, the forced red'ction in fle!-plan 'se co'ld cost yo' h'ndreds of dollars in e!tra income, 9ocial 9ec'rity withholding, and edicare withholding ta!es. oreover, those who rely on ded'cting medical e!penses won,t "e a"le to get as "ig a ta! "enefit from them. +"amacare raised the floor on itemi:ed medical e!penses from ;.5$ of gross income to <0$. )hat may not so'nd like m'ch, "'t it co'ld red'ce yo'r ded'ction "y tho'sands of dollars and there"y increase yo'r ta! "ill s'"stantially.

!ill "o# get an" $enefit?

)he ('estion, of co'rse, is whether +"amacare,s "enefit will e!ceed the e!tra ta!es yo',ll pay. )he *'ry,s still o't on that ('estion, "'t some have watched the way that health ins'rance and hospital stocks have reacted to +"amacare and have concl'ded that m'ch of the "enefit will go to ind'stry players rather than to individ'als. 4or newly covered individ'als, the fact that they,ll have coverage at all may "e the only "enefit they,ll get from +"amacare, with higher ta!es simply "eing part of the price we all pay for it. =egardless, as yo' consider yo'r ta!es this year, don,t forget a"o't the new +"amacare provisions. 7lanning for them now co'ld save yo' from a "ig headache down the road.

O$amacare%s &m'act on (o#r )ortfolio

8eyond the effects that the 2fforda"le 3are 2ct will have on yo'r personal finances, +"amacare has already had a "ig impact on companies thro'gho't the health-care ind'stry. >et,s take a look at the winners and losers in this space... and how yo' can leverage the new legislation for yo'r own personal gain5

An #ncertain f#t#re for *ig )harma

+"amacare is a mi!ed "ag for pharmace'tical companies. )he law re('ires companies to provide larger re"ates to edicaid, which co'ld cost as m'ch as $20 "illion over the ne!t decade. 0n addition, e!cise ta!es and coverage for the portion of dr'g costs that edicare previo'sly didn,t cover -- known collo('ially as the ?do'ghn't hole? . will cost the ind'stry tens of "illions of dollars in the ne!t <0 years. /free!report/"toc#!a$%i"or/o&a acare/page1'e ail()$a*g)e**+g ai... 10/16/2013

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9till, the news isn,t all "ad for dr'g companies. 9o far, they,ve retained most of their pricing power for their dr'gs and avoided what co'ld have "een costly meas'res like allowing importation of dr'gs from lower-cost co'ntries. oreover, if greater n'm"ers of covered 2mericans lead to more pharmace'tical 'se, the profits co'ld offset the costs.

*ig losers: +edical-de,ice makers TREND TRACKER: -. /ains in 0120

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edical-device makers will take the "iggest hit from +"amacare, thanks to the 2.#$ e!cise ta! on their device sales. Civen that the ta! is imposed on reven'e rather than profits, the provision will act as a "arrier to entry to new players in the ind'stry, even as "ig players pay the "'lk of the ta!. 0nd'stry giants +edtronic and 3tr"ker have already seen the impact of +"amacare and will contin'e to deal with headwinds to their "'siness. 8't the worst hit will come from c'rrently 'nprofita"le companies like +AKO 3#rgical, which can hardly afford to deal with "igger losses stemming from the ta!.

Health-ser,ices com'anies
+"amacare will have collateral impacts on many other ind'stries with ties to health care. 7harmacy "enefit manager E.'ress 3cri'ts and its peers sho'ld gain from the need for health ins'rance e!changes and private ins'rers to control costs. 3ompanies that foc's on electronic health records, incl'ding /free!report/"toc#!a$%i"or/o&a acare/page1'e ail()$a*g)e**+g ai... 10/16/2013

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Cerner and 4#alit" 3"stems, sho'ld also get a lot more "'siness as it "ecomes increasingly important for vario's parties to "e a"le to e!change information efficiently.

!ill health-care 'ro,iders and ins#rers win $ig?

+n one level, it seems like common senseD 0f health care is re('ired "y the government, the companies that provide the service will "enefit the most. @et "eca'se +"amacare limits ins'rers, profits and re('ires them to spend %0$ of premi'm reven'e on health-care services, it co'ld s('ee:e potential margins. oreover, the policies that they,ll "e re('ired to offer are in many cases of higher ('ality than their c'rrent offerings, and it,s 'ncertain whether they,ll "e a"le to charge eno'gh in premi'ms to offset the added costs from those "etter policies. 9imilarly, hospitals co'ld see more patients covered "y ins'rance, avoiding the "ig losses they inc'r when they,re re('ired to provide medical care for the 'nins'red. )hat1s tr'e, of co'rse, "'t it1s leaving o't one cr'cial piece of the p'::le... and 0 EBanF want to let =yan e!plain his view of the tr'e +"amacare opport'nity and share a 'ni('e way for yo' to profit from it...

The +edicaid mone" 'ile

0 E=yanF think a key motivator for this "ill1s passage was its impact on lowincome individ'als... specifically, those who don,t c'rrently ('alify for edicaid programs... and make 'p one of the largest segments of 'nins'red 2mericans. Ander +"amacare, many states will e!pand their edicaid eligi"ility, allowing these low-income individ'als to enroll at a price they can afford. )his presents a h'ge opport'nity for certain health-care companies that have a "ig presence in the edicaid ins'rance segment. )hese ins'rers will have pricing power and leverage with government reg'lators in esta"lishing important provisions like reim"'rsement rates for edicare and edicaid. J'st like the lemonade stand e!ample 0 disc'ssed earlier, these companies already have an e!isting c'stomer "ase. 8't if they receive government-f'nded edicaid contracts, they wo'ld gain potentially massive n'm"ers of new c'stomers that co'ld grow their "'sinesses s'"stantially. /free!report/"toc#!a$%i"or/o&a acare/page1'e ail()$a*g)e**+g ai... 10/16/2013