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Doing Nothing On Health Tax Issues Won't Cut It

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A “just do nothing” approach to health care tax issues is one sure way to arrive at national health care, cautioned Georgia Insurance Commissioner John Oxendine during the spring meeting of the National Association of Insurance Commissioners here.

And, he continued, a federally run health insurance system “would be the worst thing that could happen to our children and grandchildren.” The remarks were made during a session of the Tax Policy working group.

Part of the answer, according to Oxendine, is to get the American people to buy into health insurance and realize that the $15 co-pay in many cases does not come near covering the cost of insurance. “The American family is totally out of touch,” he said. “Mom and dad can manage their care better than insurance executives” and they need the financial incentives to do that, he continued.

That incentive can come in the form of tax incentives to help families with health savings accounts and other kinds of health care savings programs, he said. “We need to support any consumer driven product.” In Georgia, Oxendine said, bills such as one that exempts HSAs from state premium taxes are being pursued.

Regulators should engage in that debate both through action at the working group and by “calling on Congress to do the same.”

Representatives from America’s Health Insurance Plans, Washington, and Principal Financial, Des Moines, Iowa, expressed support for the call to action.

Oxendine also said that the NAIC plans to set up meetings with Treasury to discuss another tax issue, the impact of suggestions from the President’s Advisory Panel on Tax Reform on life insurance. The concern as a regulator, he says, is that it could limit the availability of product. “As a regulator, I want the largest range of products that consumers can buy,” he said. This is his main concern and not whether treating life insurance as one of many savings vehicles would hurt insurers’ ability to make money. He said that that is the industry’s concern.

Care needs to be taken not to make false comparisons between insurance and investment products, according to Lisa Tate, senior counsel with the American Council of Life Insurers, Washington. The report does not take into account how an insurance contract’s investment component helps fund the insurance piece of the contract, she explained.

Indeed, in comments to the Panel submitted in July 2005, ACLI President Frank Keating urged it not to make “the purchase of life insurance prohibitively expensive by imposing tax at a time when the insured does not have the time to pay the tax. Neither should it increase the cost of insurance for older Americans by eliminating the benefit of premium “smoothing” provided by the current law treatment of inside buildup.”

And, in November 2005, the ACLI said that the panel’s efforts to increase savings is a good one, lifetime financial planning also should incorporate the use of life insurance to financial loss at death.

In addition to life and health issues, Steve Broadie, a representative with the Property Casualty Insurers Association of America, Des Plaines, Ill., raised an issue regarding a federal tax exemption for state workers compensation funds. He discussed an exemption in IRC 501(c)(27). The exemption is not an issue as long as there is clarity that it is for entities that are single state writers, accept “all comers,” and are a market of last resort. However, he said that “there are state funds that are using the exemption inappropriately to subsidize competition in the workers comp market.” He asked regulators to further investigate this issue.