RIC EDELMAN’S Focus on
Health Care Reform
Life Just Got Harder
If you’re part of a hard-working (or retired) American family, life just got harder.
T
he health care bill is now law.
As a result, taxes are rising.
Many hard-working and retired
Americans will soon incur greater
expenses for services they have
already been receiving.
As a humanitarian, I don’t believe
anybody can argue with the principle
of providing health insurance to 32
million Americans who have not had
access to it. But those benefits have
a high cost, and hard-working and
retired Americans will be the ones
paying for it.
Let’s take a look at the new taxes that
the 2010 health care law has created.
Most will be phased in over the next
few years and are as follows:
2010
➤ Starting July 1, indoor tanning
salons will charge a 10% sales tax.
2011
➤ Pharmaceutical manufacturers
will collectively pay a new excise tax,
starting at $2.5 billion and rising over
time. The drug makers will no doubt
pass this new cost onto consumers.
➤ Non-qualified distributions from
Health Savings Accounts will be
©2010 Edelman Financial Services
A SPECIAL REPORT APRIL 2010
taxed at 20% instead of the curr-
ent rate of 10%. That’s a 100%
tax increase.
2012
➤ Private insurance plans will be
forced to pay the government $1
or $2 each year for each participant.
If you have health insurance through
a private insurance plan, you will
likely be required to pay this charge.
2013
➤ Medicare payroll taxes will rise
62% for those earning more than are making over $200,000 a year
$200,000 a year ($250,000 if you ($250,000 if you are married filing
are married filing jointly). The tax jointly), the total tax on capital
on wages in excess of $200,000 (or gains is jumping from 15% to 23.8%.
$250,000) is rising from 1.45% to That’s a 59% increase.
2.35%. That’s an additional tax of
0.9%, or a 62% increase. ➤ Medical device manufacturers
must collect a new national sales tax
➤ There will also be a new 3.8% of 2.9%. You will directly pay this tax,
tax on gross investment income for but it will not apply to eyeglasses,
those earning more than $200,000 contact lenses or hearing aids.
($250,000 for married filing jointly).
“Investment income” includes inter- ➤ Employers will no longer receive a
est, dividends, capital gains, rental subsidy for providing retiree pre-
income, annuities and royalties. scription drug coverage. Companies
In addition to this new tax, capital will pay more to provide such ben-
gains taxes are set to rise in 2011 efits as a result. (It has already been
from 15% to 20% — that’s a 33% announced that AT&T will incur a $1
increase. Therefore, for people who billion charge, plus $62 million
continued on page 2
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RIC EDELMAN’S HEALTH CARE REFORM SPECIAL REPORT APRIL 2010
in new taxes annually because of
this provision. Similar announce-
ments have been made regarding
John Deere ($150 million), Caterpillar
($100 million), 3M Company ($90 mil-
lion) and AK Steele ($31 million), and
many more companies in the For-
tune 500 are expected to make simi-
lar announcements soon.) It is widely
expected that Corporate America
will pass these costs onto consum-
ers in the form of higher prices for
their goods and services, reduction
in the benefits they provide to their
retired employees (who will in turn
be forced to pay higher health care
costs) or both.
➤ You will not be able to deduct
medical expenses on your tax
return until you’ve spent 10%
of your Adjusted Gross Income.
Currently, you can begin deductions
after you spend 7.5% of your AGI.
Therefore, this is a 33% increase in
the threshold.
©2010 Edelman Financial Services
➤ Contributions to Flexible Spend-
ing Accounts will be capped at
$2,500 per year, and you will no
longer be able to use the money to
buy over-the-counter drugs. This
change will cause some taxpayers
to pay as much as several thousand
dollars more in health care expenses
and in annual income taxes.
➤ If you’re an executive in the health
insurance industry and earn more
than half a million dollars a year,
taxes will effectively double for all
of your income above $500,000.
2014
➤ Employers with more than 50 em-
ployees that do not provide health
insurance to their employees will pay
a $2,000 penalty per employee per
year, starting with the 31st employee.
➤ If you do not have health insur-
ance, you and each member of your
household will pay a new tax of 1%
of household income (at least $95
RicEdelman.com
per person per year). This tax will
rise to 2.5% per year (at least $695
per person) by 2016.
2018
➤ Health insurance plans that cost
more than $10,200 for individuals
($27,500 per family) will pay a new
40% tax on any coverage that ex-
ceeds the limit. Plan sponsors will no
doubt pass this cost along to you.
In addition to these new taxes, the
new health care law cuts federal
funding of Medicare by $500 billion
over the next decade. The states will
find themselves forced to deal with
this cutback, and they will have little
choice but to increase state income
taxes, force Medicare patients to
pay more of their health care costs,
or both.
Medicare is not the only entitlement
program likely to see cuts. According
to the Congressional Budget Office,
2010 will be the first year that Social
Security pays out more in benefits
than it collects in payroll taxes. This
was not expected to occur until 2016.
Based on current projections, Social
Security will be broke by 2037 unless
changes are made. That means taxes
will rise, and benefits will be delayed
or reduced, or all three.
Retirees are already feeling pressure.
There was no cost of living adjust-
ment (COLA) for Social Security in
2010, and none is expected for 2011,
either. This represents a net decrease
in income for retirees, because Medi-
care taxes continue to rise despite
the fact that there is no offsetting
increase in Social Security benefits.
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RIC EDELMAN’S HEALTH CARE REFORM SPECIAL REPORT APRIL 2010

Meanwhile, the Center for Retire-
ment Research at Boston College
released a study in March 2010
showing that married retirees who
are both 65 years of age and current-
ly free of chronic disease will spend
$197,000 on health care during
retirement. And a 2008 study from
the Schwab Center for Financial
Research says that one-third of
baby boomers are currently provid-
ing financial assistance to parents,
and 50% are providing support to
children, proving that millions of
Americans are true members of the
so-called “Sandwich Generation.”
All these statistics help explain
why 84% of Americans
say they are not confi-
dent that they will ever “Despite all the tax increases and political omy to recover from re-
be able to retire, accord-
acrimony, the resilience of the American to level off. Consider:
ing to the Employee
Benefit Research Insti- economy should not be questioned.”
tute’s 2010 Retirement
Confidence Survey.
Such pessimism is unnecessary.
Despite all the tax increases and
political acrimony, the resilience
of the American economy should
not be questioned.
Take, for instance, the financial mar-
kets. The week the health care reform
bill was signed into law, the Dow
Jones Industrial Average* rose more
than 100 points, indicating that the
stock market doesn’t consider the
health care bill to be a net negative
for the overall economy. Sure, the law S&P 500 stocks beat analyst profit
will negatively impact some sectors
and individuals, but it will benefit percentage on record, according
many others, including hospitals and to Bloomberg.
the insurance industry.
There’s more. Non-financial compa-
There’s been other good news as nies of the S&P 500 have a record
well. The World Trade Organization $1 trillion in cash. Many are using
announced on March 26 that it ex- this hoard to restore and increase
pects global economic trade to grow dividends; 76 companies have made
9.5% this year. That is a dramatic such announcements so far this year.
turnaround from last year when it And corporate spending, a dramatic
shrunk 12.2%. In addition to that, driver of the U.S. economy, will grow
Greece is now officially receiving the 8.9% over the next 12 months — up
financial support it needs from both 1.5% from last year — according to a
the Eurozone and the International survey completed in March by Duke
Monetary Fund, virtually eliminating University and CFO magazine.
the risk that many have fretted over
Things are looking up for individuals
for weeks that Greece will default
on its debts. too. The unemployment rate — his-
torically one of the last
segments of the econ-
cession — is beginning
36,000 jobs were lost in
February 2010, com-
pared to an astounding
There’s good news domestically as 651,000 jobs lost in February 2009.
well. Corporate profits are rising. That’s a 95% decline in job losses, ac-
The National Association of Business cording to the Labor Department.
Economics predicts the economy
will grow more than 3% this year and And 83% of the 555 large companies
next, and that businesses will add polled by human resources consult-
100,000 jobs a month by year-end. ing firm Hewitt Associates are plan-
A March survey by Bloomberg of ning to award raises. Last year, 50%
of those companies froze salaries and
U.S. CEOs found that executives are
boosting their earnings estimates at 10% forced workers to accept pay
cuts. Meanwhile, the U.S. household
the fastest rate in at least eight years.
Ten percent of U.S. companies have savings rate is now 3.1%, higher than
it’s been in years, and homeown-
raised their forecasts for the first
quarter, and more than 72% of ers added $1 trillion in home equity
in 2009, according to the Federal
estimates — the second highest Reserve.
continued on page 4

*An Index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the
relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee
future results.

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RIC EDELMAN’S HEALTH CARE REFORM SPECIAL REPORT APRIL 2010

Then there’s the success of the opportunity for taxpayers to enjoy

much-criticized government rescue
program. Just 18 months ago, the
financial markets were reeling as the
government stepped in to shore up
the nation’s financial institutions.
Many have condemned the govern-
ment’s decision to give billions of
dollars to banks and brokerage firms,
but it now appears that taxpayers
will be huge winners as a result.
Case in point: The government gave
Citigroup $25 billion, which was
converted to Citi stock. The Treasury
Department now plans to sell those
shares and it is expected to garner
an $8 billion profit when it does so.
Similarly, the Treasury Department
received a profit of $1.5 billion by
selling warrants it owns in Bank of
America. The Treasury Department
also collected $1.2 billion in fees
while it was insuring money market
funds during the credit crisis.
And many economists predict this
is just the beginning. During the
depths of the credit crisis, the federal
government purchased billions of
dollars in so-called toxic assets
(derivatives such as auction rate
securities and collateralized debt
obligations), often for pennies on the
dollar. This not only drastically eased
the credit crisis by creating liquid-
ity for the banks, enabling them to
resume lending, but it created the
massive windfall profits — profits
that are just beginning to be felt. So
far, in fact, the federal government
has earned billions, with more to
come. This is yet another example of
the dramatic and swift turnaround of
our economy.
Even things that seem to be bad
aren’t necessarily so. Take, for exam-
ple, the Lost Decade of 2000 to 2009
— so-called because the Dow ended
2009 at 10,428, 1,069 points less than
where it started in 2000. Yet Fidelity
Investments, one of the largest spon-
sors of 401(k) plans in the country,
analyzed the accounts of 11 million
401(k) participants in more than
17,000 company-sponsored plans
over the past 10 years and found that
those who were invested throughout
the decade ended the 10 years with
account balances nearly 150% higher
than when they started — even
though the Dow lost an average of
0.5% a year. The average participant
who maintained his account for 10
years had $163,900 at the end of
2009, up from $65,800 in 1999. Thus,
the Lost Decade was not lost at all,
showing that it’s possible to create
and grow wealth no matter what’s
happening in the economy. (The
secret to those investors’ success, by
the way: They kept contributing to
their 401(k) despite the economy’s
Ric Edelman
Ric Edelman’s company, Edelman
Financial Services, manages billions
of dollars in investments for clients
nationwide. He is ranked the #1
independent financial advisor in
the nation by Barron’s.**
For more of Ric’s advice on invest-
ing and personal finance, listen to
The Ric Edelman Show, broadcast
weekly on radio stations nation-
wide or read his current bestseller,
Rescue Your Money.
RicEdelman.com
weakness, often with the encourage-
ment of a financial advisor.)
So, yes, life is getting harder, but that
doesn’t mean we should give up. We
have choices. We can choose to be
optimistic rather than pessimistic,
to believe in America, in the Ameri-
can way of life and in the American
economy. We can be confident in
our financial futures by making wise
choices and seeking advice to sort
through the confusion.
The American dream lives. And you
can still make yours a reality. ■

Ric Edelman is Chairman and CEO of Edelman Financial Services LLC. Ric is an Investment Advisor Representative and offers advisory services through EFS, an SEC-
registered investment advisor. He is also a Registered Principal of and offers securities through Sanders Morris Harris Inc., an affiliated broker/dealer, member FINRA/SIPC.
**Barron’s ranking “Top 100 Independent Financial Advisors” (Aug. 31, 2009) based on assets under management, revenues the advisors generate for their firms, and the
quality of their practices.

The opinions expressed herein are those of the writer and may not reflect those of Sanders Morris Harris Inc. or any of its affiliates. The information herein has been obtained
from sources believed to be reliable, but we do not guarantee its accuracy or completeness. Neither the information or any opinion expressed constitutes a solicitation to
buy or sell any security. This information is not intended for tax planning purposes and no one connected with Sanders Morris Harris Inc. can ensure the tax consequences
of any transaction. Please be sure to consult with your tax professional.

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