Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Headshots of Senators Chuck Schumer, on left, and Joe Manchin, on right, from Bloomberg

Life Health > Annuities > Fixed Annuities

Schumer-Manchin Deal May Raise Some Life Insurers' Taxes

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Congress watchers disagree about whether the bill can get through either the House or the Senate.
  • One section would cap Medicare enrollee out-of-pocket drug spending at $2,000.
  • Another section would extend current ACA premium tax credit subsidy eligibility rules through 2025.

The new Inflation Reduction Act of 2022 package could have an obvious effect on any insurance agents or financial advisors who help clients with health finance issues.

The 725-page package could also have an indirect effect on life and annuity advisors, through provisions that do not mention life insurers directly but that could increase some life insurers’ tax bills.

The package might also have an effect on advisors with estate planning practices, by creating opportunities for estates and trusts to use new tax credit programs.

Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.Va., unveiled the proposal Wednesday.

What It Means

Some analysts are questioning whether congressional leaders can round up the votes needed to push the package onto the desk of President Joe Biden.

If it becomes law, the Schumer-Manchin proposal, and any amendments the proposal accumulates on the way to passage, could give agents and advisors a new conversation starter for their clients.

Corporate Tax Provisions

Section 10101 in the proposal, the Corporate Alternative Minimum Tax section, would require companies — including life insurers — with an average annual “adjusted financial statement income” over $1 billion to pay a minimum federal income tax rate of 15%.

The provision emphasizes that affected companies must pay the new federal “base erosion and anti-abuse tax,” which is supposed to keep multinational companies from using offshore affiliates to cut their federal income taxes.

Section 56A in the Corporate Alternative Minimum Tax section would set the rules for calculating “adjusted financial statement income.”

The section would exclude income and expenses related to defined benefit pension plans from the adjusted financial statement income calculations.

Schumer and Manchin are predicting in a proposal summary that the minimum corporate tax provision would raise $313 billion from all affected companies over 10 years.

Several life insurers and corporate groups with large life insurance operations have shown up on lists of large U.S. companies with what appear to be low federal income tax rates in recent years.

The lists have included names such as Berkshire Hathaway, Elevance, Lincoln Financial, Principal Financial, Prudential Financial, UnitedHealth and Unum.

But the compilers of the lists have generally crunched raw data, without seeking the insurers’ explanations for the low tax bills.

U.S. life, annuity and health issuers spent about $15 billion of their $55 billion in net gains from operations on U.S. federal and foreign income taxes and capital gains taxes in 2020, according to National Association of Insurance Commissioners data included in the American Council of Life Insurers’ latest Fact Book.

That amounts to about 27% of gains from operations, and about 1.7% of the companies’ total premium and investment revenue.

It’s unclear how life insurers’ total adjusted financial statement income would compare with their operating gains and their total revenue.

If a new corporate minimum income tax increased some life insurers’ tax bills, those insurers might increase the cost of some products or realign their operations to reduce the amount of income affected by the new tax rules.

Medicare Provisions

A provision that starts on page 225 of the PDF version of the Schumer-Manchin proposal would make the full Medicare Part D prescription drug coverage subsidy available to Medicare enrollees with income up to 150% of the federal poverty level. Today, only enrollees with income under 135% of the federal poverty level qualify for the subsidy.

Another provision, which starts on page 163 of the proposal, would be more likely to affect the relatively high-income people who use the services of agents and advisors: It would make their annual medical expenses more predictable, capping Medicare Part D coverage users’ out-of-pocket expenses for drugs at $2,000 per year.

Other provisions could affect all Medicare enrollees, and the entire U.S. economy, by letting Medicare program managers negotiate lower prescription drug prices with the manufacturers and creating other incentives for manufacturers to hold down prices.

The Medicare drug price provisions could affect clients by holding down drug prices, but they could also have unpredictable effects on clients’ investment portfolios, by, for example, hurting the performance of mutual funds, annuities and stock portfolios with significant exposure to the performance of pharmaceutical stocks.

Affordable Care Act Premium Tax Credit Provisions

Some clients under age 65, and some agents and advisors, get their health coverage from the Affordable Care Act public exchange system.

Before the COVID-19 pandemic flared in the United States, ACA premium tax credit subsidies were available only to consumers with income under 400% of the federal poverty level.

Since then, Congress has provided emergency rules that make subsidies available to any consumer with health insurance premium bills defined as unaffordable according to federal affordability rules.

The Schumer-Manchin proposal would extend the emergency tax credit eligibility rules to the end of 2025, from the end of 2022.

The ACA section, which starts on page 231 of the PDF version of the proposal, could help you and your clients pay for health insurance.

It could also help the performance of any client investments that involve exposure to the stocks of health insurers, for-profit hospital companies, pharmaceutical companies and other companies that benefit from middle-income people having commercial health coverage.

Tax Incentives

The package could also add estate planning opportunities, by setting up new advanced manufacturing (page 414), clean energy production (page 454) and clean fuel production (page 496) tax credits that appear to be available to estates and trusts.

Pictured: Sen. Joe Manchin, D-W.Va. (Photo: Al Drago/Bloomberg)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.