Wealth Advisers See Healthcare Tax Hit for Clients

Thomas Coyle
The Wall Street Journal
Nov 10, 2009

With healthcare reform out of the House and on its way to the Senate, financial advisers are scrambling to understand what changes to the healthcare system can mean to their well-to-do clients, writes Dow Jones columnist Victoria Knight.

What the House version of the bill means is higher taxes for the affluent, says Stephen Baxley, head of tax and financial planning at Bessemer Trust.

House is calling for a 5.4% tax for individuals with annual modified adjusted gross incomes over $500,000 and for couples with $1 million a year, starting in 2011.

And because the tax is imposed on gross, pre-deduction income, it’s likely to hit clients harder than would a simple increase in the top income-tax rate bracket, says Baxley.

The Senate version of the bill is expected to impose an excise tax on high-cost insurance plans to raise revenue rather than a tax on the affluent.

Here’s the rub though: the House funding plan raises about half of the $1 trillion or so its healtcare reform legislation would cost over 10 years; the Senate’s plan would scratch up only around a quarter of the 10-year, $829-billion cost of its version of healtcare reform.

In any case, Bessemer is looking into ways employers can lessen the impact of the Senate plan by, for instance, keeping benefits under the level of the deluxe “Cadillac” plans the Senate is taking aim at, and increasing employees’ compensation so they can buy supplemental coverage.

Bottom line, “with the fate of the estate tax unknown, and other taxes, such as capital gains, widely expected to go up, advisers are gearing up their clients to be as tax-efficient as they can in 2010 before rates go up” — with or without additional taxes to fund healthcare reform, writes Knight.

Knight’s columns are avialble to Dow Jones Newswire subscribers