Individual annuities will save Social Security about $110 billion over the next 10 years, by helping contract owners delay when they start claiming Social Security retirement benefits, according to the American Council of Life Insurers.
Private disability insurance could save Social Security $8.2 billion, and private long-term care insurance could save Medicaid $14 billion.
The ACLI has put those estimates in a new analysis of how the current tax rules for its members' products hold down federal spending.
Life insurers help strengthen U.S. families' financial safety net, said ACLI's president, David Chavern. And as lawmakers work on tax policy and budget matters, "they should carefully consider which industries are providing the greatest good to the nation," Chavern said.
What it means: Life insurers are worried about what the ongoing budget and tax policy fight in Congress will do to the current tax rules for their products.
Losses could make some products less appealing, or even leave clients who already have certain products facing unexpected tax bills.
Successes could make the products that escape major tax-rule changes more appealing.
The backdrop: The federal government is running a deficit of about $1.9 trillion per year on $5.5 trillion in revenue.
The government could post a deficit of $16 trillion on $70 trillion in revenue for the 10-year period ending in 2034, according to White House budget figures posted a year ago.
Republicans in Congress want to renew rules created by the 2017 tax overhaul that are set to expire at the end of this year. Extending such provisions as the doubling of the estate tax exemption could increase the federal deficit for the period from 2025 through 2034 by $7.4 trillion, according to the Congressional Budget Office.
As members of Congress are looking for ways to save the tax cuts without leading to huge increases in federal debt, life insurers fear that the tax rules for life insurance, retirement savings products and related products and services could be targets.
Annuity holders, for example, can defer paying taxes on withdrawals until they begin taking distributions.
LTCI claimants can collect the benefits free from federal income taxes, and some policyholders can exclude the premium payments from their taxable income.
Policymakers on Capitol Hill who are trying to add programs, cut taxes or save existing tax breaks often think in terms of "pay-fors," or changes they could make in other federal programs or tax rules to pay for the effects of the changes they support.
Life insurer product pay-fors: Many clients and financial professionals think of life insurance companies, annuity issuers and issuers of products such as disability insurance and long-term care insurance as separate types of organizations, but regulators tend to classify the companies that write those products as "life insurers" or "life and health companies."
The ACLI had analysts come up with the estimates of how much members'' main products affect federal spending.
The analysts found, for example, that annuities save Social Security about $16 billion in benefits per group of taxpayers turning 67 in a given year.
But the people who own the annuities will end up collecting higher monthly benefits checks than if they had retired at 67, and they will probably live longer than non-annuity owners, reducing the net effect on Social Security benefits outlays to $11 billion per year, according to the analysts.
The analysts found that private disability insurance programs save Social Security about $820 million per year because private disability insurers are better than Social Security at helping claimants return to work.
White House budget analysts predict that Social Security will pay about $20 trillion in retirement and disability benefits from 2025 through 2034.
About 5% of people with private long-term care insurance might end up using Medicaid nursing home benefits if they had no private LTCI, and private LTCI coverage holds down Medicaid nursing home benefits spending by sharply reducing the odds that the insureds will use Medicaid to pay for care, according to the analysts.
Medicaid could spend about $8 trillion over 10 years, according to White House budget analysts.
David Chavern. Credit: ACLI
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