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5 Key Life and Health Sections in Final Tax Bill

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The new, combined version of H.R. 1, the Tax Cuts and Jobs Act bill, could cost life insurers about $22 billion over the period from 2018 through 2027.

Rep. Kevin Brady, R-Texas, originally proposed a version of the tax bill that would raise about $22 billion, by combining a $7 billion change in the tax rules for life insurers’ deferred acquisition cost (DAC) expenses, or spending on activities such as marketing, underwriting, and paying agents’ and brokers’ commissions, with a $14.9 billion change in life insurers’ reserving rules.

Over in the Senate, Sen. Orrin Hatch, R-Utah, proposed generating about $23 billion in revenue by simply changing the DAC rules.

The current version, which was produced by a House-Senate conference committee, appears to be more like the original Brady bill than it is like the Senate bill.

(Related: GOP Releases Final Tax Cut Bill)

The conference report version would generate $7.2 billion over 10 years with DAC accounting changes, and $15.2 billion over 10 years with life insurance tax reserve changes, according to revenue analyses posted by the congressional Joint Committee on Taxation.


The House Ways and Means Committee has posted links to information about H.R. 1, including the text, here.

The Senate Finance Committee has posted its H.R. 1 documents here.

The PDF that contains the full text of H.R. 1 is 1,101 pages long.

For laypeople, the easiest way to start to understand the bill may be to look at the “estimated revenue” tables posted by the Joint Committee on Taxation (JCT).

In the revenue tables, JCT analysts try to predict how each H.R. 1 provision is likely to affect federal government revenue.

The section for the life insurance provisions takes up less than half of a page in each revenue report.

Even if the JCT revenue forecasts turn out to be wrong, the estimates can help show which provisions seem to likely to have a big effect on insurers’ finances.

Here, for example, is the JCT revenue table for the version of H.R. 1 that Brady posted on the House Ways and Means website on Nov. 2.

Here’s a JCT revenue table for the first version of H.R. 1 that Hatch posted on the Senate Finance Committee website on Nov. 9.

Here’s the JCT revenue table for the new conference report version of H.R. 1, which reconciles the differences between the House version of the bill and the Senate version.

Floor Action

The House Rules Committee will be meeting to package H.R. 1 for House floor action at 5 p.m. Eastern time Monday. House leaders say they hope to vote on the bill Tuesday.

Senate Majority Leader Mitch McConnell has not yet said when the Senate might vote. For McConnell, one obstacle is that both Sen. John McCain, R-Ariz., and Sen. Thad Cochran, R-Miss., have been battling health problems that kept them off work.

In theory, lawmakers could send the bill back to the conference committee for further work, but they cannot amend the bill on the House or Senate floor.

Insurance Provisions

Of course, any section in the bill could turn out to be of critical importance to some agents.

Provisions of interest to anyone who pays taxes include the ones that would nearly double the standard deduction, eliminate personal exemptions, keep the medical expense deduction, and expand the medical expense deduction for two years.

Another change that looks as if it might be critical to agents, but probably would not affect many agents in a significant way, would eliminate the Archer medical savings account. That’s a type of personal health account that existed before the health savings account (HSA). No new MSAs have opened since 2007. Elimination of the MSA may lead to paperwork for holders of MSAs, but it will have no effect on HSAs.

Here’s a look at five other H.R. 1 provisions that may be of interest to life and health agents.

House Chamber (Photo: House)

(Photo: House)

1. Affordable Care Act individual major medical mandate (Page 103)

The ACA now requires many people to have what the government classifies as solid health coverage, or minimum essential coverage, or else pay a penalty. It now amounts to 2.5% of modified adjusted gross income over the income tax filing threshold,

The House left the penalty alone.

The Senate version of H.R. 1 cut the penalty to 0%.

The House-Senate conference committee kept the Senate version of the provision.

Note that the provision would simply set the penalty amount at 0%, not repeal it. In the future, a Congress controlled by Democrats could just as easily increase the penalty amount back to 2.5%, or to 5%.

The provision would apply only to months beginning after Dec. 31, 2018. The delay could give Congress time to increase the penalty above 0% before the 0% rate ever takes effect.

2. Life Insurance Reserves (Page 247)

Life insurers can now keep their tax reserves, or reserves computed using federal tax rules, out of taxable income.

The original House version of H.R. 1, which Brady posted on the House Ways and Means Committee website, would have let life insurers shield either 76.5% of their tax reserves, or the net surrender value of the contract, whichever was greater, when computing their taxes.

JCT analysts estimated that provision could have raised $14.9 billion over 10 years.

Hatch and the Senate Finance Committee did not put a similar provision in their versions of the bill text, but they appeared to be discussing a life tax tax reserve proposal.

When Sen. Tim Scott, R-S.C., proposed a package of life insurance amendments for the Hatch version of the bill, he suggested letting a life insurer shield either 92.87% of its tax reserves, or the net surrender value of the contract, if the net surrender value was larger, when computing its taxes.

The House-Senate conference committee ended up adopting a provision similar to the House life reserve provision.

The version adopted would let a life insurer shield just 92.81% of its tax reserves when computing its taxes.

The provision would apply to taxable years beginning after Dec. 31, 2017.

The conference report life reserve provision could transfer $15.2 billion from life insurers to the federal government over 10 years, according to JCT analysts.

3. Prevailing Commissioners’ Standard Tables (Page 253)

Like the Senate versions of H.R. 1, the conference report version would set rules for what happens when the National Association of Insurance Commissioners’ standard reserving tables change. An issuer could use the old table for up to three years after the year of change.

4. Deferred Acquisition Costs (Page 258)

The term “deferred acquisition costs” refers to the money a life insurer spends on acquiring new business. The DAC amount can include the cost of marketing, underwriting, and life insurance producer fees and commissions.

Complicated rules govern how life insurers put DAC costs in their taxes.

The original House version of H.R. 1 could have led to $7 billion in DAC rule change costs for life insurers over a 10-year period. The version of the bill the House approved left the DAC rule change section out.

The Senate version could have led to $23 billion in DAC rule change costs for life insurers.

The House-Senate conference committee agreed to go with a provision similar to the Senate version, with different numbers. The provision would apply to taxable years beginning after Dec. 31, 2017.

The new JCT analysis shows the provision could pull $7 billion out of life insurers over 10 years.

5. Life Settlement Provisions (Page 261)

The Senate Finance Committee versions of H.R. 1 added three sections missing from the House versions: three life settlement provisions.

One would establish tax reporting rules for life settlement transactions, a second would specify how the parties involved in life settlement transactions should calculate the tax basis, and a third would set the tax rules for the death benefits coming from a life insurance policy sold to someone other than the original policyholder.

The House-Senate conference committee kept the Senate versions. The provisions would take effect after Dec. 31, 2017. 

The JCT revenue table for the conference committee version says the provision would raise about $200 million over 10 years. 

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