Is The Industry Facing Another Battle Over Taxing Life Insurance Products?
While Congress is wrapping up business this week in advance of its August recess, the life insurance industry is preparing for a possible post-Labor Day battle over taxation of some life insurance products.
Senate Finance Committee Chairman Max Baucus, D-Mont., said last week that he and the committees ranking Republican, Sen. Chuck Grassley, R-Iowa, plan to introduce legislation to eliminate what he called “abusive corporate tax shelters.”
While no details were available at press time, products such as corporate-owned life insurance and split dollar have been on the table before and could be again.
The underlying problem, sources tell National Underwriter, is the weakened economy.
The Congressional Budget Office will shortly issue a report that is widely expected to say there is no longer any budget surplus to pay for tax relief.
This means that any tax relief Congress considers will have to be offset by revenue-raising provisions elsewhere.
While the House of Representatives is expected to vigorously oppose any revenue raisers, they are on the table in the Democrat-controlled Senate.
The insurance industry itself is backing several initiatives that could be termed tax relief. These include premium deductions for long-term care insurance and health insurance for the self-employed, and an extension of the current treatment of investment income earned overseas by subsidiaries of U.S. financial services firms.
While there is some speculation that the revenue-raising offsets will be generic in nature and not target specific industries, life insurance representatives are watching the situation closely.
As for inside buildup of whole life insurance, the House Ways and Means Committee considered placing a cap on the amount of tax-free inside buildup earlier this year as a means to pay for estate tax repeal.
Again, while details of the Baucus-Grassley bill have not been released, the wide speculation is that capping inside buildup will not be considered by the Senate.
Turning to the issue of optional federal chartering of insurance companies, the board of directors of the American Council of Life Insurers decided to continue its efforts to examine the practical and political feasibility of optional federal chartering for life insurers.
During a recent meeting, the board voiced support for the draft legislation developed by ACLIs staff.
However, the board has not made a decision on whether to pursue optional federal chartering on Capitol Hill at this time.
Gary Hughes, senior vice president with ACLI, notes that some regulatory reform initiatives aimed at life insurance developed by the National Association of Insurance Commissioners are just getting off the ground.
In particular, he cites the Coordinated Advertising, Rate and Form Review Authority (CARFRA).
Hughes says NAIC expressed concerns that any action taken by ACLI on optional federal chartering could harm these efforts.
Improving state insurance regulation remains ACLIs top priority, Hughes says, and the board does not want to do anything to jeopardize pending reforms.
Hughes notes that the House Financial Services Committee is expected to conduct hearings on optional federal chartering after the August recess.
Finally, the effort to enact legislation that would bar health insurance companies from discriminating on the basis of genetic information has some powerful support.
Senate Majority Leader Tom Daschle, D-N.D., testified in favor of such legislation at a Capitol Hill hearing last week.
Daschle says Congress should bar insurers from raising premiums or denying coverage based on the results of genetic tests, and from disclosing the results of genetic tests without the individuals consent.
“Americas fear of genetic discrimination is real and, unfortunately, actual cases of genetic discrimination are real, too,” Daschle says.
“We must provide real protections that will protect an individuals right to keep genetic information private and protect that individual from discrimination that is just as arbitrary and unacceptable as that based on race, national origin religion, sex or disability,” he says.
“We must not wait until genetic discrimination becomes a widespread problem,” Daschle adds.
Legislation that would bar health insurance from discriminating on the basis of genetic information is pending in both the House and the Senate.
The bills, H.R. 602 in the House and S. 318 in the Senate, have broad bipartisan support.
The Health Insurance Association of America opposes the legislation. HIAA notes that discrimination on the basis of genetic information is already barred by the Health Insurance Portability and Accountability Act (HIPAA) for group health insurance.
As for other lines of insurance, such as long-term care, HIAA says that allowing individuals to purchase coverage based on health factors that they know, but which the insurance company does not, would lead to adverse selection.
Reproduced from National Underwriter Life & Health/Financial Services Edition, August 6, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.