Obama Budget Blueprint Impacts Life & Health Insurance Industries

The blueprint also expands the “saver’s credit” provision, which is designed to help moderate- and lower-income families who save in 401(k) s or IRAs.

The budget proposed to modify the existing saver’s credit to provide a 50% match on the first $1,000 of retirement savings for families that earn less than $65,000. The credit would be fully refundable to ensure that savings incentives are fair to all workers.

Cliff Wilson, president of the National Association of Insurance and Financial Advisors, said NAIFA’s members support the provisions regarding the estate tax as providing certainty, and also support the provision that would allow employees not covered by qualified retirement plans to save through automatic payroll deposit IRAs–as long as employees have an opt-out provision.

Wilson said the changes may “very well” provide opportunities for agents to sell tax-advantaged products, but cautioned that above all else, “taxpayers must be confident the economy will grow in order to ensure there are incentives available for people to plan for their future and to save for retirement, as well as invest in their business.”

At the same time, Stertzer cautioned that proposals to increase taxes on the wealthy are likely to be controversial.

He also said, “There will be many critical decisions in 2009 and 2010 with major implications for the life insurance industry and the broader public–tax reform, regulatory reform, employee compensation issues, and health insurance reform,” adding that the blueprint “is a post-stimulus bill kick-off of legislative consideration in which AALU and the broader life insurance industry will be heavily engaged.”

The Medicare Advantage proposal is also expected to be controversial. It is designed to deal with the fact that under current law, Medicare overpays Medicare Advantage plans by 14% more on average than what Medicare spends for beneficiaries enrolled in the traditional fee-for-service programs.

It was proposed as part of a $634 billion down payment toward creating universal health coverage.

Under the administration proposal, the current system for setting rates will be replaced with a competitive system in which payments would be based upon an average of plans’ bids submitted to Medicare.

“This would allow the market, not Medicare, to set the reimbursement limits, and save taxpayers more than $175 billion over 10 years, as well as reduce Part B premiums,” the document said.

Karen Ignagni, president of America’s Health Insurance Plans, applauded the overall concept, saying it “sends a signal to the American people that this administration is serious about prioritizing health care.”

But she criticized the decision to cut the funds for the Medicare Advantage program. “Unfortunately, this proposal would force seniors enrolled in Medicare Advantage to fund a disproportionate share of the costs to reform the health care system,” she said.

“A cut of this scale would jeopardize the health security of more than 10 million seniors enrolled in Medicare Advantage and would turn back the clock on innovative payment incentives to improve the quality of care that patients receive,” she added.

The Automatic IRA proposal was developed by the Retirement Security Project, which includes a former IRS commissioner and congressional staff member. The proposal was endorsed by President Obama and Sen. John McCain during the Presidential election campaign.

David John, a principal of The Retirement Security Project, reacted to the proposal’s inclusion in the budget by saying, “We are delighted to see that the president has included Auto IRA in his budget.”

He noted that it has “broad bipartisan, cross-ideological support, and has bipartisan support in Congress.”