What's in the Emergency Economic Stabilization Act of 2008?

Today's Wall Street Journal reports that President Bush signed into law the Emergency Economic Stabilization Act of 2008, which you may know as "the bailout bill". What does it mean for physician families? Here's our summary of the relevant points in the 425 page document.

The Losses In Your 401(k) Probably Won't End Today

If you were thinking the bailout bill might make your stocks and mutual funds finally bottom out, think again. The Secretary of the Treasury has until November 17 to establish rules that govern details of the bailout, including how securities will be purchased, what price will be paid, who will manage the assets, and what troubled assets to actually buy. In this economic environment, 45 days is an eternity, and all hell might still break loose between now and then. And even after the program spends the first dime on the first bad mortgage, we won't know for sure what the government has actually done for probably 3 months or more since their first report is due 60 days after the program begins to function.

But You Probably Won't Be "Wiped Out" Either

I believe the legislation will have the desired effect: keeping the country's financial system from collapsing. If we avoid a real, honest-to-goodness depression, then physician families will be facing a recession, which we as a nation face about every 5-10 years as a natural part of the economic cycle. If you've done your financial homework and observed the best practices of personal finance, you may be a bit uncomfortable but you'll survive. Healthcare is one of those must-have services and even recession won't change that.

This legislation does more than make it possible for the Treasury to buy up troubled mortgages. The Treasury also gains the ability to modify loans it has purchased by reducing interest rates or reducing the balance due. This may make it easier for homeowners to stay in their homes, stabilizing the inventory of homes on the market. We believe this might put a floor under home prices, which benefits everyone.

Your Bank is Now Safer, But Not For Long

Section 136 of the Act increases the FDIC coverage limit on bank deposits from $100,000 to $250,000. Physicians who use bank checking and savings accounts to hold cash they need for 6-figure tax bills and other large expenses will now find it much easier to protect their savings. This limit also applies to federally-chartered credit unions under the NCUA.  This provision expires December 31, 2009 unless Congress chooses to extend it.

By the way, a family of four can effectively gain FDIC/NCUA coverage for a total of $1.5 million now at any covered bank or credit union by arranging their accounts carefully.

$7,000,000,000: Smaller Than It Looks, And Bigger Too

The bailout's price tag to taxpayers has been touted as $700 billion but it may never cost that much since the act allows the Treasury to purchase only ("only") $250 billion worth of bad assets to begin with. Only with a request from the President can the Treasury spend another $100 billion. To take the total exposure for taxpayers up to $700 billion, Congress would need to OK an additional/final $350 billion.

When the Treasury buys up these securities, they may bring some price stability to these and similar securities, causing investors beyond the Treasury to see value and begin buying. If this action re-ignites the market for these securities (which are not all worthless), it may not be necessary to tap the whole $700 billion. Interest and capital appreciation on these securities would also serve to decrease the total outlay.

To get the bill through Congress, lawmakers added "sweeteners" including an extension of Alternative Minimum Tax relief that may benefit some physician families (saving affected families $3,700 for the 2008 tax year). This may sound good but there are a number of provisions in the bill which will not benefit physicians directly, and the Congressional Budget Office estimates these extras could increase the federal deficit by $107 billion over the next nine years. We expect that physicians will bear an increasingly larger tax bill to pay for it all.

Your Tax Bill Is Headed Upward

As almost every taxpaying doctor must already know, the Act raises the ceiling on the federal debt to $11.3 trillion (wow!). But what physician families may not know is that Section 122 of the Act increases the limit without regard to the success or failure of the bailout effort.

Upshot? Even if the bailout is a resounding success, Congress still has the authority to run up $700 billion more in debt, and that debt might not have a thing to do with the bailout. Think of it as an increase in the limit on Uncle Sam's credit card where physicians are the ones paying the bill.

A Bill For Mental Health

If thoughts of the Second Great Depression and financial meltdown are making you crazy, the new bailout bill may have something for your mental health... really. In addition to the rescue package, the new law includes long-sought language requiring insurers to offer coverage for most mental illnesses at comparable rates to physical illnesses.

The Paul Wellstone Mental Health and Addiction Equity Act of 2008 requires group health plans to apply the same health insurance benefits to mental health or substance-related disorders as they apply for medical and surgical benefits, including limits on deductibles, co-payments, and out-of-pocket expenses. If you have a psychiatric practice, this could be very good news for you. And if a member of your family is dealing with substance abuse issues, this will bring much-needed financial relief. It might also be expected to raise the cost of health insurance for everyone.