7 Senate Budget Package Highlights for Retirement Advisors

Today, enrollees using catastrophic drug coverage are responsible for 5% of the bills.

A provision on page 749 would require Medicare drug plans to make a variety of insulin products available to enrollees, for $35 or less per month, starting in 2024. Republicans shot down a similar provision that would have capped insulin prices for the private market.

These provisions could help reduce anticipated post-retirement health care costs for clients who are still planning for retirement, and they could hold down costs in the near future for any clients who will be retired by 2024.

4. Medicare Part D drug plans could cap enrollee out-of-pocket spending at $2,000 starting in 2025.

This provision, described on page 169 of the H.R. 5376 PDF file, would apply to clients with stand-alone drug coverage or in Medicare Advantage plans that provide drug coverage.

In addition to helping clients hold down post-retirement health care costs, it could eliminate a major source of post-retirement health care cost uncertainty.

5. The famous Medicare price-negotiation section could have some direct effects starting in 2026, and indirect effects immediately.

A long section starting on page 43 of H.R. 5376 would authorize Medicare program managers to begin phasing in a drug price negotiation process with drug manufacturers in 2026.

The section is getting publicity because policymakers have been trying for years to give Medicare managers some ability to bargain with pharmaceutical companies.

The section in H.R. 5376 would include many restrictions on Medicare’s negotiating powers, and it could start using its new powers on just 10 drugs per year.

Employer groups could kill the provision, which would not apply to commercial health insurance plans outside the Medicare program and could thus leave enrollees in commercial group health plans vulnerable to huge price increases.

But the idea that Medicare could begin negotiating prices in 2026, and that drugmakers will need allies to stop that from happening, could give health insurers and employers a stronger bargaining position as soon as the provision became law, even if the provision never actually took effect.

This could help retirees and pre-retirees who now have high prescription drug bills save at least some money as early as next year.

6. A new 1% stock buyback excise tax and a new 15% corporate alternative minimum tax could change how life insurers see life and annuity sales.

Today, the publicly traded life insurers that issue some of the annuities and cash-value life insurance policies used in your clients’ income planning arrangements face intense pressure to return capital to shareholders by buying back shares of their own stock.

A provision on page 31 of the H.R. 5376 PDF file would impose a 1% tax on the fair market value of stock buybacks.

If insurers and shareholders find that provision burdensome, life insurers might engage in fewer share buybacks.

Affected insurers might work harder to use revenue growth to make themselves more appealing to shareholders. They could increase agent and broker compensation, spend more on marketing, or sweeten insurance and annuity products features and returns.

Another corporate tax provision, on page 2 of the H.R. 5376 PDF file, would require affected companies to pay taxes equal to at least 15% of “adjusted financial statement income for the taxable year.”

It’s possible that most life and annuity issuers already meet the requirements of that provision.

If some don’t, they might see investing in revenue growth — by increasing producer compensation, spending more on marketing, and sweetening product features and returns — as a good way to add value without driving up current adjusted financial statement income and subjecting themselves to big new income tax bills.

7. Clean energy and manufacturing tax incentives could create new investment opportunities for insurers, and new and improved investment option menus inside products such as variable annuities and indexed universal life policies.

The heart of H.R. 5376 is long sections meant to do things like encourage a shift to electric vehicles, solar power systems and wind power energy systems.

Those sections could have big, unpredictable, long-lasting effects on the investments packaged inside clients’ life insurance policies, annuities, mutual funds, 401(k) plans and other retirement savings arrangements.

Pictured: Sen. Joe Manchin (Photo: Sarah Silbiger/Bloomberg)