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Healthcare Reform Losers: Companies Providing Retiree Benefits Face Multi-Million Dollar Tax Costs

After sending letters of protest to Congress in the months prior to the healthcare law's approval, U.S. companies are now facing multi-million dollar after-tax hits this year due to a tax provision in the new legislation, labeling them healthcare reform losers instead of winners.

Part of the new healthcare law places a federal income tax on government subsidies given to companies that provide retirees and their spouses with drug benefit plans. The 28% subsidy was created as Medicare Part D, adding a prescription plan for senior citizens to the Medicare Act of 2003. To encourage companies to continue offering retirees a drug plan, the tax-free subsidy reduced companies' costs. Fewer senior citizens then went through Medicare's prescription program - which would have cost taxpayers much more than the subsidy price.

Caterpillar Inc (NYSE: CAT) and Deere & Company (NSYE: DE) are just two of the businesses that fought the new stipulations. The manufacturers estimate the tax will cost them $100 million and $150 million this year, respectively. Other companies who will pay handsomely include AK Steel Corp. (NYSE: AKS) with $31 million in charges, and Honeywell International Inc. (NYSE: HON) with an estimated fee of $42 million.

Consulting firm Towers Watson & Co. (NYSE: TW) estimates these taxes could cost companies about $233 per person receiving drug benefits - a hefty price tag when a company gives benefits to 40,000 retirees, like Caterpillar.

Overall, more than 3,500 companies offer drug benefits to 6.3 million retirees. Although the tax won't be effective until 2011, accounting practices force companies to recognize the fees in the period in which the law is signed. That means the tax could nab $14 billion from corporate profits in a year when companies were hoping to recover from huge losses during the recession.

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We Want to Hear From You: What Do You Think About the New Healthcare Law?

After months of controversy, political bickering and maneuvering, and intense media speculation and scrutiny, this week became a historically significant moment in the annals of U.S. healthcare when U.S. President Barack Obama signed the new healthcare bill into law. Thus begins a new chapter in the healthcare saga, when the country will feel the effects […]

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Drug Companies and Hospitals Get a Boost from Healthcare Reform

After months of trying to predict how the healthcare reform proposals would affect the respective futures of their industries, drug companies and hospitals are optimistic about the prospective long-term profits the final version of the health care reform bill could bring them.

President Barack Obama yesterday (Tuesday) signed the $940 billion health care reform bill with support from pharmaceutical companies and the hospital industry. Both will benefit from a sharp increase in the number of insured customers, as the bill expands healthcare to up to 32 million more people.

While the bill will cost tens of billions of dollars over the next 10 years, the planned reforms create something drug companies and hospitals can't live without: paying consumers.

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Shaky CBO Deficit Projections Help Healthcare Reform Bill Pass House

When the comprehensive healthcare reform bill won approval from the House on Sunday, some of the swing lawmakers were won over by a new Congressional Budget Office (CBO) analysis showing the bill will slash the deficit by over $1.3 trillion over the next 20 years.

But at a time when the U.S. budget is already saddled with hefty doses of red ink, there's a growing debate about whether the new bill will reduce the deficit or evolve into another entitlement program that will expand the country's debt beyond already record levels.

Even though the bill - which President Barack Obama has hailed as the "most significant effort to reduce the deficit since the Balanced Budget Act" of the 1990s - will cost the federal government $940 billion over a ten-year period, the CBO said it will increase revenue and cut other costs by an even greater amount.

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Teva Pharmaceutical Wins Fight in the Generic Drug Market Battle

Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA) will buy sought-after German generic producer Ratiopharm for $4.97 billion, continuing a trend of highly competitive merger-and-acquisition (M&A) activity in the pharmaceutical industry. Competitors have pursued Ratiopharm for nine months because of its position as the second biggest generic producer in Germany. It was put up for sale in […]

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Can Democrats Dislodge the Debate Over Healthcare Reform?

If U.S. President Barack Obama goes ahead with a plan to have Democrats invoke a parliamentary gambit known as "reconciliation" to pass healthcare reform, a little known provision in the budget cycle ensures that Washington politicians will get to the endgame in less than 60 days.

One of the peculiarities of reconciliation is that it is a creation of the 1974 Budget Act and is linked to the annual budget cycle in Congress. It has been used to pass more than 22 tax cuts and deficit reductions over the years.

But the Budget Act specifies that Congress must complete action on its budget resolution by April 15 of each year. Once the budget resolution conference report is adopted by both the House of Representatives and the Senate, its terms govern the remainder of the budget process for that year - meaning no further spending measures can be introduced, including healthcare reform.

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Obama's Targets Insurers with $950 Billion Health Care Reform Plan

Health insurance providers are protesting this week as the government comes a step closer to strengthening its industry regulation by calling for new "common sense" practices.

This latest development in U.S. President Barack Obama's push for health care reform occurred Monday when the White House released a sprawling $950 billion proposal in anticipation of tomorrow's (Thursday's) scheduled summit.

Obama's plan, which combines the respective reform bills of the Senate and the House of Representatives, suggests drastic changes are coming for insurance providers.

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The Seven Themes That Will Lead to Maximum Profits in 2010

If the crippling financial events of 2008 and 2009 proved one thing, it's that investors need to rethink the entire philosophy of "portfolio management."

Today, the best-performing managers around the world manage their portfolios based on broad-and-potent market themes. And with good reason.

It's much easier to follow macro trends based on broad-based themes than it is to cobble together a bunch of different stocks into a portfolio and call it diversified. Theme-based investing is also much more profitable. And it allows you to better manage your risks.

In short, theme-based investing lets you have your cake and eat it, too.

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Coming Soon: The Bill for the Massive U.S. Debt

Americans could be in for a rude awakening in coming months when they discover the true scope of the massive national debt racked up by the U.S. government.

In fact, the $1.6 trillion deficit expected for 2010, which is above 10% of gross domestic product (GDP), is only the beginning.

Since the current economic crisis began in late 2007, the U.S. Federal Reserve has tripled the size of its balance sheet, creating enormous amounts of new money by lending to hundreds of ailing banks and buying up more than $1 trillion of questionable asset-backed securities.

But that's only a small part of the story. Since the beginning of the crisis, the Fed has lent, spent, or guaranteed $11.6 trillion, including underwriting the entire system of mortgage finance in the United States, a system that currently shows a nearly $1 trillion loss.

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Investment News Briefs

With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world.

Fannie, Freddie Get Blank Checks; Holiday Retail Sales Rise 3.6%; Fed to Banks: Set Up CDs with Us; Health Care Bill Likely to Resemble Senate Version; JPMorgan Sues Former Bank Exec; Oil Tops $79 for First Time in Four Weeks

  • In what's been called a "perplexing" move by one analyst, the U.S. Treasury lifted a $200 billion cap on the amount of taxpayer dollars that can be injected into ailing mortgage firms Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) , providing unlimited support to them. The Treasury put into $60 billion into Fannie and $51 billion into Freddie, and were unlikely to need more than the $200 billion cap, wrote Keefe, Bruyette & Woods Inc. analyst Bose George in a note to investors yesterday (Monday). George views the Treasury's move as a way to more aggressively prop the U.S. housing market, and said the government could step up efforts of its Home Affordable Modification Program (HAMP), a mortgage-modification program designed for homeowners who can no longer afford them. But so far, HAMP and other government props have failed to stop a continuing wave of foreclosures, as Money Morning reported last fall. Shares of the firms, both government-sponsored enterprises (GSE) skyrocketed in trading yesterday. Fannie was up 20.95% to close at $1.27, while Freddie gained 26.98% to close at $1.60.

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What the Government Isn't Telling You About the New Healthcare Bill

In a vote that was held at 1 a.m. Monday, the Senate approved a procedural measure that makes it likely a version of the national healthcare bill will make it into law.

In fact, by taking advantage of an obscure rule that allowed lawmakers to start their day and vote on the measure well before dawn, Senate leaders were able to approve the measure and keep alive the possibility that the healthcare bill will be passed by Christmas.

But if you study the Senate bill carefully - no matter what your political persuasion may be - you have to wonder why they even bothered.

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Senate Healthcare Bill Headed for Christmas Eve Vote Without Public Option

Shares of health insurers and pharmaceutical companies gained yesterday (Monday) after a new version of the Senate's healthcare reform bill eliminated the so-called public option. But it's the next few weeks on Capitol Hill that will determine the long-term effects that Congressional reforms will have on health-related sectors.

As one of the worst December snowstorms on record passed over Washington last weekend, Senate Democrats successfully negotiated to get the 60 votes needed to clear the first of three motions to thwart further debate on the bill and pave the way for final passage of the bill on Christmas Eve.

"It defies logic that we are now expected to vote on the overall, final package before Christmas with no opportunity to amend it, so we can adjourn for a three-week recess even as legislation will not fully go into effect until 2014," said U.S. Sen. Olympia Snow, R-ME.

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How Washington Will Mess with Your Money in 2010

In this era of growing government involvement, it's no surprise that Washington is poised to be the biggest economic wild card of the new year.

Indeed, investors who are trying to estimate the impact that politics will have on their portfolios in 2010 are likely finding this attempt at analysis to be an exercise in futility.

If that's been the case, read on: Political pundits - even those who claim to be impartial - spend a lot of time trying to score points for their side. But they aren't really that interested in the economic aspects of the endless battle. I certainly don't claim to be any more unbiased than the next person. However, I thought it worth trying to take an educated guess at what will actually happen, and what it will mean for our money.

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Healthcare Reform May Not Cut Spending or the Federal Deficit

Senate Democrats last week took a critical first step for U.S. President Barack Obama's sweeping healthcare overhaul when they successfully held off Republican efforts to reverse $460 billion in cuts to Medicare - money needed to expand coverage to tens of millions of uninsured Americans.

But as the political battle wears on this week, experts say the debate should turn its focus to one critical question: Will the legislation will put a damper on soaring healthcare costs or simply pile millions of people onto a system that already is threatening to drive the United States into bankruptcy?

Despite contentions by the White House that the bill is a necessary first step in efforts to reform an out-of-control medical system, most analysts are deeply divided over the long term implications of both the Senate and House bills for medical spending and federal deficits.

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