Health Options

THE WALL OF WORRY HAS continued to provide comfortable climbing for the major equity indices. By the numbers, for the week ended Friday, July 24, 2009, the Dow Jones Industrial Average closed at 9093, up 350 points, or 4%. The Standard & Poor’s 500 closed at 979, up 39 points, or 4.1%, and the NASDAQ Composite closed at 1965, up 79 points, or 4.2%.

The administration is in full court press mode on national health insurance. An interesting group of folks, including Blue Dog democrats, and some Republicans, are offering alternatives. One of the more divisive proposals in the national health plan is a public plan option, which would put the government in competition with private insurers.

Starbucks and home builders shares are up, Microsoft shares are down, as companies continue to report earnings. According to a report released by Ryanair, two-thirds of airline passengers would stand on short flights, if they could fly free. 42% would stand if they could fly for half price.

The price/earnings ratio of the S&P 500 is about 14.3, near long term averages. If we take into account some of the large write-offs in the financial sector over the last year, it’s possible to suggest a P/E of closer to 50. Many who study the economy and financial markets suggest that a P/E in line with historical norms is reflective of a generally healthy economy, and growing corporate earnings. At the moment, both of these are in serious question.

As of last Friday, 189 of the S&P 500 have reported earnings. Of those, 77% have exceeded analyst’s estimates. Some estimates were for profits, others were for losses. This according to Bob LeClair, writing for Leimberg Information Services.

Our friends in Washington are looking at using the tax code as an enforcement tool, not just a fundraising tool. The plan is to make folks buy basic coverage, and have employers offer insurance, or face a big penalty. Key lawmakers in both House and Senate agree that this is the way to go, according to the Kiplinger Tax Letter.

House Democrats prefer an 8% excise tax on payroll of companies that fail to fund at least 65% of the insurance premium for an employee’s family coverage, with corporate payrolls of less than $250,000 exempt. The Senate prefers a flat fee tax of $750 for full time and $375 for part time employees for firms that don’t pay at least 60% of employee premiums for basic coverage, with exemptions for firms with fewer than 25 employees.

With this headlong rush toward socialized medicine, and exemptions for small employers, look for creativity. We see free market business owners looking for ways to maintain control over multiple entities. The goal will be to employ few enough people in each entity to stay under the qualifying limit, maintain enough control to run the businesses effectively, and give up enough ownership to avoid common control issues.

Our family is exploring health care options. For the last few years, we have been covered under my wife’s employer plan. As of August 1st, our costs are tripling, to more than $600 monthly. One option I’m exploring is MediShare. MediShare is a membership organization that gives members the opportunity to share medical expenses. It does not offer insurance. As I’ve studied the way it works, it reminds me to some degree of the fraternal organizations so common in the 19th and early 20th centuries. If you are interested, you can find out more at www.medi-share.org.

In a big win for taxpayers owning interests in LLCs and LLPs, the Tax Court has ruled that losses from these entities aren’t necessarily presumed to be passive, as the IRS has argued. In Garnett, 132 TC No. 19, the Tax Court rejected the theory that taxpayers must classify all LLC and LLP losses as passive, allowing taxpayers to show that they materially participated in the business of the entity. At stake is the difference between losses taken against all income, versus losses taken against only passive income.

Charitable trusts that purchase securities on margin may be subject to UBTI. Any income from securities purchased on margin will be subject to Unrelated Business Taxable Income Tax, according to Tax Court Memo 2009-145, and reported in Kiplinger’s.

Quote of the week:

“Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don’t turn up at all.”
As submitted by my good friend and Marine, Bill Broughman