For advisers and their clients, health-care reform might be an investment opportunity.
From the market's standpoint, passage of the health-care reform bill in its current state is generally more positive than negative, David Kelly, the chief market strategist at JPMorgan Chase & Co.'s J.P. Morgan Funds unit, wrote in a research note.
However, the money to pay for it must come from somewhere, and this will affect wealthy people when the law takes effect.
Beginning in 2013, people earning more than $250,000 a year will see the Medicare tax on their income rise to 2.35%, from 1.45%, and the same group will be hit by an additional 3.8% Medicare tax on investment income.
And that is not all, Kelly said: The dividend and long-term capital gains tax rate is likely to rise from 15% to 20% next year for people earning more than $250,000 who, counting the Medicare tax on investment income, would be saddled with a total 23.8% burden, reducing their income stream by 10.4% compared to what it is today.
Advisers have some time to reconfigure their clients' accounts to adjust for the tax hike, though. As Peter McFarland, a Raymond James adviser at Central Bank and Trust in Lexington, Ky., said, "Many clients have more capital losses than they'll ever have in a lifetime. I have some clients carrying $200,000 forward in capital losses."
Margaret Starner, an adviser at the Starner Group of Raymond James in Coral Gables, Fla., said the details surrounding taxation have yet to be thrashed out and may well change, but she added that her clients are expecting tax hikes due to the deficit.
"Most clients are worried on a personal level, not the macro level," she said. "They want to know if they'll be negatively impacted more by an impairment to their health care than [by] rising taxes, which everyone knew would go up. And no one's surprised Obama decided to tax higher-income people."
In terms of investments, the health-care sector itself may not be a bad bet. The law expands health coverage to 30 million people who lacked it, but it also does little to rein in costs. "While there are many constraints preventing insurance companies from limiting coverage, there are few which limit how much they can charge for it," Kelly wrote.
Pharmaceutical companies are also likely to get a boost from having 30 million prospective new customers. The law does not cap drug prices, and these companies may well simply pass on the cost of doing business in the prices they charge new customers.
"We're looking at opportunities in United Healthcare and some of the pharmaceutical companies," McFarland said.
Starner said that she is also keeping a watchful eye on the ancillary businesses that are likely to benefit from changes in the health-care industry in the next decade.
"Companies that produce medical supplies will be in huge demand," she said. "Consulting firms will also be huge beneficiaries of this transformation, and there will be a huge expansion of employment throughout the health-care sector that will benefit payroll companies."
As for the economy's health, Kelly was not too worried. "Despite dire predictions, it's not clear that health-care reform will really slow economic growth that much," he said. "Most of the tax provisions don't kick in until 2013, and the mandates on businesses and individuals don't kick in in a big way until 2016. Be[fore] then, the economy is quite capable of staging a full cyclical recovery."