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Life Health > Health Insurance

Tentative Agreement Reached On COLI

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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.

William K. McGreevy, president of the Association of Health Insurance Advisors, Falls Church, Va., praises the HSA language.

HSAs, he says, will make affordable health options available to small employers and their employees.

The legislation also is drawing strong support from business groups. Businesses that currently provide retiree prescription drug benefits will receive a $70 billion subsidy to continue doing so.

“This agreement is fantastic news,” says Neil Trautwein, vice president of health policy for the National Association of Manufacturers, Washington.

And in a major political boost for the legislation, the American Association of Retired Persons, Washington, has endorsed it.

But the legislation is drawing sharp criticism from some health care activist groups.

Ron Pollack, director of Families USA, says the legislation provides too little help for poor seniors and does too much harm to traditional Medicare. “It still can, and should, be changed,” he says.

Under the legislation, the prescription drug benefit would begin in 2006.

The premium would average $35 per month and there would be a $275 deductible.

Medicare would then cover 75% of all drug costs up to $2,200. There would be no coverage for costs between $2,200 and $3,600. But above $3,600, Medicare would cover 95% of costs for beneficiaries above 150% of the poverty line and 100% for those below 135% of the poverty line.

Beneficiaries in between those percentages would have a co-pay of between $2 to $5 per prescription.

Beneficiaries could receive the prescription drug benefit as either stand-alone coverage or as part of a private health plan that offers drug coverage.

Private health plans that offer basic health coverage would receive a $12 billion subsidy also to provide the drug coverage.

In addition, beginning in 2010, the legislation launches a pilot program under which Medicare would face competition from private health plans in six locations.

The demonstration sites would have two local private plans and enroll at least 25% of local beneficiaries.

Beneficiaries who chose to remain in the traditional Medicare program would be assured that their premiums could not increase by more than 5% in any year during the 6 years of the pilot project.

The legislation also creates Health Savings Accounts. Individuals would be allowed to put $1,000 annually ($2,000 for couples) into an HSA, which would be tax deductible, earn tax-free interest and withdraw the money tax-free to pay for qualified medical expenses.

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 21, 2003. Copyright 2003 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.


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