The life insurance industry has reached a tentative agreement with the Senate Finance Committee on corporate-owned life insurance.
“We think this is a good compromise,” says Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va.
The new language, he says, is based on an earlier proposal developed by Sen. Kent Conrad, D-N.D., which the industry supported.
Plybon says he believes the entire industry, including AALU, the National Association of Insurance and Financial Advisors and the American Council of Life Insurers, will support the compromise and hopes it will be accepted by a majority of the Senate Finance Committee.
Jack Dolan, a spokesman for the ACLI, says the industry is united on COLI.
“We are working hand in hand to get the Senate Finance Committee to mark up reform legislation,” Dolan says, adding that there are indications it could happen before the session ends.
Under the compromise, employees covered under a COLI policy would have to be notified in writing of the insurance and consent in writing to being insured.
In general, the new language says the amount of the death benefit the employer can exclude from gross income may not exceed the sum of the premiums or other amounts paid for the contract, with two major exceptions.
First, this limitation does not apply to policies covering individuals who were employees at any time during the 12-month period prior to death.
In addition, the limitation does not apply to amounts payable to the deceased employees beneficiaries or family, or to amounts earmarked to purchase an equity interest in the employer from the beneficiaries or family.
There is also an exception for key employees.
The controversy over COLI erupted in October when the Finance Committee approved language sponsored by Sen. Jeff Bingaman, D-N.M., which would tax the proceeds on all COLI policies covering employees who die more than one year after leaving employment.
The insurance industry fought the Bingaman proposal, and the committee agreed to hold a separate hearing on COLI and reconsider the Bingaman language.
Turning to Medicare reform, an industry-backed Medicare prescription drug program hung in the balance at presstime as supporters and opponents mustered their forces ahead of a final vote.
If enacted, the legislation would provide Medicare beneficiaries with a major new benefit, establish a test program in which Medicare would face competition from private health plans and allow creation of health savings accounts (HSAs).
The legislation is drawing intense reactions among industry and health care activist groups.
Karen Ignagni, president of AAHP-HIAA (the recently merged American Association of Health Plans and Health Insurance Association of America) says the legislation will provide seniors with more health care choices as well as prescription drug coverage.