Farrell: Pulling a Nelson
Chief Investment Officer, Soleil Securities
Senator Ben Nelson is having buyer's remorse. Or is it seller's remorse? In any event, he is having a load of remorse. Criticized from every angle imaginable for getting Nebraska out of paying for additional Medicaid in return for his (60th) vote to get the health reform bill through the Senate, Senator Nelson asked Senator Harry Reid of Nevada, the Majority Leader, to remove a special provision in the health care legislation that would have the Federal government pay all Nebraska's costs for the proposed extension. The original maneuver was met with a torrent of criticism and was scorned by the Republicans (gee, what a surprise!) as the "Cornhusker Giveback." Cousin Arnold Schwarzenegger of California said in his State of the State Address, "He got the corn, we got the husk."
But, says Ben, he didn't really mean for Nebraska to be exempt. He said he meant for all states to have the chance to opt out of the Federal mandate for additional coverage/expense. Then he said the Feds should be forced to pay for the additional program and the states should not be forced to have this cost inflicted on them. But White House leaders are committed to the expansion since this is how 15 million currently uninsured would get coverage by 2019. But, Ben pleads, what he meant was, "This (the Nebraska exemption) was intended to serve as a placeholder that would be removed during the conference negotiations and replaced with a mechanism applying to all State governments." Yeah, right!
I don't think the unions that negotiated a downsizing of the plan to tax "Cadillac" health insurance programs will feel so guilty. They skillfully played the system and got many of their members' health insurance plans at least temporarily exempt. They pulled a Nelson even better than the original. But, in so doing, the plan is short some $60 billion in revenues needed to at least pretend to cover the cost of the health insurance reform agenda. How this shortfall is to be made up is uncertain, assuming some program does get passed.
You could eliminate the income cap on Medicare taxes, which would raise substantial funds, but, of course, would be a very obvious tax increase.. There is discussion about extending the Medicare tax to "unearned income" (God, how I hate that expression) or to capital gains. Chip Kahn, President of the Federation of American Hospitals, and a frequent advisor to our health care analyst, A.J Rice, and Soleil, said in a recent conference call that while he couldn't rule it out, there has not been an approach for the hospital industry to ante up more than the $155 billion they have already put on the table.
As to the idea of the health care reform bill itself, so much depends on the Massachusetts vote taking place as this is being written. Since I want to get home to watch American Idol—yes, I admit it. I'm hooked on the shoe—even without Paula—we have to deal in the theoretical. The Administration is committed to getting a bill passed. If Brown wins, they could try to get a vote before he takes office, but that comes with a guaranteed political backlash. They could try to get the House to vote the Senate bill as is and eliminate the need for the Senate to do anything. But there are Democrats in the House that have expressed reservations about the Senate version. But as Ben "Leave Me Alone" Nelson and the unions have shown, waiting it out will probably get you some advantages. This could get extended and even messier.
Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.