NAIFA Blog

NAIFA President Smith Sends Letter Supporting Bill on Health Care Law's MLR Rule

NAIFA President Rob Smith sent the following letter of support to Sens. Mary Landrieu (D-LA), Johnny Isakson (R-GA), Mark Begich (D-AK) and Lisa Murkowski (R-AK):

The National Association of Insurance and Financial Advisors (NAIFA) shares your concern with the adverse impact on consumer service resulting from the application of the medical loss ratio (MLR) in the individual and small group health insurance markets.

NAIFA applauds your efforts to provide relief from the well-intentioned rule that is having a devastating effect on agents and the clients they serve. It has resulted in 21% of NAIFA-surveyed members reporting downsized business and 41% indicating they stopped offering health insurance to some or all clients.

The balanced approach of S. 650, the Access to Independent Health Insurance Advisors Act of 2013, would appropriately preserve the valuable services and programs offered by licensed health insurance agents for the protection of consumers by removing agent remuneration from the calculation in the individual and small group markets.

NAIFA members are job creators in every Congressional district and primarily serve middle market consumers who are in need of affordable financial advice. We look forward to working with you, and Members of Congress on both sides of the aisle, to ensure consumers have access to professional assistance. Thank you again for your leadership.

Sincerely,

Robert Smith
NAIFA President

 

Complacency

By Rob Smith, NAIFA President

NAIFA President Rob Smith

A March 5 NAIFA Blog post noted the favorable coverage that NAIFA’s grassroots government affairs  program received in the March 1 issue of InsuranceNewsNet (INN). INN editor in chief Steven A. Morelli sought input from real NAIFA members and lobbyists to showcase the historical role that NAIFA’s members and staff have played in creating and preserving the life insurance and annuity tax benefits that help financially secure 75 million American families. 

A read of the full article also introduces a phenomenon that can easily blunt any government relations program—complacency. One highly regarded industry observer was quoted in the article as saying:  “I have taken the view that until the dotted line is signed, it is nothing. Until they actually sign it in to law, I would not get too excited.”

For those of you old enough to remember former Dallas Cowboy quarterback “Dandy” Don Meredith and the early years of Monday Night Football, waiting until the “dotted line is signed” would be the equivalent of singing Dandy Don’s then famous serenade when the outcome of a game was assured: “Turn out the lights, the party’s over.”

It’s easy to assume that the current tax laws for life insurance and annuities are carved in stone and that to suggest otherwise is crying wolf. But, facing ever more difficult budget choices, Congress has been cutting back. A recent example is the Affordable Care Act’s 3.8 percent tax on the investment income—including annuity payments—of “high income” people. High income people today, moderate income people tomorrow. Annuities today, life insurance tomorrow.

Knowing that bad things can happen to good tax provisions, NAIFA is always alert to that possibility. The budget/tax situation has been growing (mostly) dire for over 40 years. For NAIFA to ignore the threat to life insurance and annuity tax policy would amount to association malpractice.

So, kudos to the NAIFA members who will be attending the April 8-9 Congressional Conference. And congrats to the key legislative contacts who recently made fly-ins to D.C. and regularly walk in to the district offices. For other NAIFA members, stay alert to the possibility of a general grassroots call to arms. Remember, a good offense is the best defense—in football and government relations.

A Pain in the Pocketbook

Young Adults Could See Steep Premium Increases in 2014 Under the Affordable Care Act.

NAIFA has begun working with industry partners to urge the government to remedy a provision in the federal health care law that would drastically increase the cost of health insurance for younger Americans.

The 3:1 age rating band set by the Affordable Care Act means that beginning next year insurance companies can charge the oldest people they insure no more than three times what they charge the youngest. A consequence would be that younger adults, who tend to be healthier, would see their premiums go up. A study by Oliver Wyman found that people aged 21 to 29 who buy individual coverage could see premiums jump by 42 percent.

Many young people would likely choose not to buy health insurance coverage even if they face penalties under a government mandate. This, the experts say, would result in higher average premiums for everyone over time.

At the very least, NAIFA believes the Department of Health and Human Services needs to phase in implementation of the 3:1 age rating band. Currently, 42 states have age rating bands of 5:1 or higher. An abrupt change to 3:1 could destabilize insurance markets and lead many younger people to drop coverage at the beginning of 2014. Under a gradual tightening of the ratio, younger people would see their premiums rise slowly over a number of years.

Ultimately, it seems even more prudent for Congress to amend the ACA to create a 5:1 age rating band that would impact far fewer young people and result in less drastic premium increases.

Fiscal Cliff Deal Ups Taxes for “the Rich”

On January 1, 2013, the lame duck 112^th Congress approved a controversial bill, H.R.8, to avert the “fiscal cliff”—the $7 trillion + in higher taxes and deep spending cuts that would have taken place under current law had lawmakers not reached agreement. The package contains about $620 billion over 10 years in new revenue (higher taxes), mostly falling on high-income Americans. The Senate approved the measure at 2 a.m. on January 1 by an 89 to 8 vote. The House passed it at 11 p.m. on January 1 by a vote of 257 to 167.

H.R.8 does not impose new taxes on life insurance, annuities, pensions, retirement savings or employer-provided benefits. But because many Americans now face increased tax liability, these products may hold more appeal for those impacted by the new tax law.

H.R.8 is an expansive bill although much of its scope is focused on tax. Among other things, the bill permanently extends 2012 tax rates on adjusted gross income (AGI) under $400,000/individuals and $450,000/married, permanently raises tax rates on AGI above those levels, delays the across-the-board spending cuts (the sequester) by two months, repeals the shell of the federal government’s long-term care/disability insurance program (the CLASS program) and replaces it with a Commission, extends unemployment benefits for a year, provides a one-year delay in the almost 30 percent cut in Medicare reimbursement rates for doctors, and eliminates the 2013 cost of living adjustment to Congress’ pay.

Many of the tax provisions in H.R.8 are “permanent”—i.e., there is no built-in sunset, or expiration date, connected to them. Of course the 113^th (or other future) Congress can change these rules, but they will not automatically change as was the case with 2012 tax rates (and other tax rules).

 The new taxes that take effect on January 1, 2013 include:

• A permanent increase in the top two tax rates for adjusted gross income (AGI) that exceeds $400,000 for single taxpayers and $450,000 for married taxpayers filing jointly

• The two new permanent tax rates are 35 percent and 39.6 percent

• A permanent extension of 2012 tax rates for taxpayers with AGI under the $400,000/$450,000 levels

• Dividends will continue to be taxed under capital gains tax rules

• The capital gains tax rate is permanently set at 15 percent for those with AGI under the $400,000/$450,000 level; and at 20 percent for those with AGI above that level (the highest earners will actually see that rate rise to 23.8 percent because of an additional 3.8 percent investment tax included in the 2010 health care overhaul)

• The top estate tax rate is set permanently at 40 percent, but the personal exemption remains $5 million (indexed)

• The PEP (personal exemption phase-out) and Pease (limits on the value of deductions) rules were made permanent and indexed—PEP and Pease now apply to AGI of $250,000 for individuals, $275,000 for heads of household, and $300,000 for joint returns

• There is a permanent “patch” of the alternative minimum tax (AMT)—i.e., the exemption  amount for individuals rises from $33,750 to $50,600 and for joint returns from $45,000 to $78,750. The exemption amounts are then indexed (i.e., they will be adjusted for inflation after 2012)

• The bill contains authority to roll over certain retirement plan balances to Roth (taxable contribution/tax-free distribution) accounts within the retirement plan

The bill also repeals the CLASS Act, the moribund new federal program that would have provided long-term care/disability insurance through an employer-based automatic deduction system. It sets up a new federal Commission that would study and then recommend to Congress ways to address Americans’ long-term care needs. The Commission would include representatives from federal and state agencies, providers of long-term care insurance and services, and consumers.

Other elements of the tax package include a decision to let the temporary Social Security payroll tax holiday expire (that means all taxpayers will pay an additional two points in FICA or SECA tax in 2013 and thereafter); a five-year extension of the child tax credit, the opportunity tax credit (education tax incentives), and the earned income tax credit; a one-year extension of the rule that allows small business to expense up to $250,000 in qualified expenditures; and extension/reinstatement through 2013 of the tax-extender package, which includes the rule that allows a direct tax-free gift from an IRA to a  charity.

Next Steps: H.R.8 does not contain instructions or an expedited process for tax and/or entitlement reform in 2013. However, in the next two months Congress will again be tackling deficit reduction due to the expiration of the sequester delay, the need to raise the debt ceiling, and the fact that funding for the federal government runs out in March. It is likely there will be a renewed effort to include instructions and an expedited process for tax (and possibly entitlement) reform in this upcoming legislative process.

Further, even without statutory instructions and/or an expedited process, it is widely expected that tax reform will be among the 113^th Congress’ top priorities. Work on tax reform is likely to begin early in the new year, probably before spring.

HHS Issues NAIFA-Backed Proposal on Broker Compensation

The Department of Health and Human Services released a proposed rule on Friday that includes a NAIFA-backed measure to include fair agent compensation in the federally facilitated health care exchanges. According to the notice, HHS will only certify qualified health plans (QHP) to be offered through the federal exchanges if the plans offer broker compensation that is comparable to what similar plans outside of the exchanges would pay.

“NAIFA is pleased the proposed rule recognizes the important role agents and brokers play,” said NAIFA President Rob Smith. “Brokers provide myriad services, from analyzing clients’ coverage needs to helping individuals get claims approved to providing wellness programs for small businesses.”

“Agents and brokers are the de facto human resources departments for many small companies,” Smith added. “These are services that no one else provides and that brokers cannot continue to provide if they are not fairly compensated.”

While encouraged by the proposed inclusion of broker compensation in QHP certification, NAIFA remains concerned about the negative impact of the health care law’s medical loss ratio provision on agent compensation and the overall cost of health coverage. NAIFA looks forward to a continued dialog with regulators and lawmakers to improve the new health law.

Health Care Law to Bring New Tax on Investments

Many financial advisors are preparing clients for the 3.8 percent tax on investment income that goes into effect January 1, 2013. A recent survey by Nationwide Financial found that 88 percent of affluent investors said they are confident that their advisors will adequately prepare them for the tax hit, though most said they do not plan to meet with their advisors to discuss the matter.

The tax has nothing to do with the current fiscal cliff negotiations or comprehensive tax reform expected in 2013. Rather, it is a part of the 2010 Affordable Care Act designed to help pay for the law's health care and Medicare reform.

The new tax applies to individuals with adjusted gross incomes above $200,000 or couples with AGIs above $250,000. Income from stock sales, dividends, bonds, mutual funds, annuities, interest, loans and home sales may be subject to the tax.

An AdvisorOne article details how some advisors are positioning clients to deal with the new tax.

NAIFA's Jill Hoffman: 'Now is the time' to educate Congress about our products

As the fiscal cliff clock continues to tick away toward the end of the year,  NAIFA assistant vice president Jill Hoffman told Employee Benefits Advisor that consumers will look to the financial services industry for answers and recommendations on what to do moving forward. In a podcast interview, Hoffman advised NAIFA members to “be active and involved” in educating Congress about our products. “Now is the time to act. It’s incumbent upon the members of the financial services industry to educate their lawmakers about the impact the fiscal cliff could have on their clients.”

In addition, with the Obama Administration firmly in place for the next four years, Hoffman said while there will not be a repeal and replace effort in healthcare reform, there will be modifications to the law. “Certainly the Medical Loss Ratio is top of mind among NAIFA members. We want to make sure they are adequately compensated for the services that they provide their clients.”

NAIFA Statement on the Election

NAIFA President Robert O. Smith issued the following statement on the Nov. 6 federal election:

 

NAIFA President Rob Smith

"Yesterday the American people spoke and re-elected President Obama for another term while maintaining the status quo in the House and Senate. The President has many tough challenges ahead but he has also pledged to represent all Americans.

 

"The election results tell us that our country remains sharply divided over how to move forward. NAIFA members serve main street. We have been vocal in our desire for modifications to the new health care law to better serve middle America. We are eager to work with the Administration and Congress in a nonpartisan manner to develop workable policies and legislative solutions.

"With a NAIFA member in every congressional district, NAIFA stands ready to build new relationships and strengthen existing connections in order to establish a basic level of understanding among all members of Congress about the value of insurance protection and financial planning.

"If the lame duck session is successful in avoiding the fiscal cliff, the resolution is not likely to permanently address the most significant tax and economic issues. Comprehensive reform will remain a challenge for a divided Congress to address.  In addition to in-district meetings, NAIFA members will come to Washington in April to explain the financial security and peace of mind that our products provide to 75 million American families while also serving as an economic break wall for government safety nets such as Social Security.  The products we offer and the services we provide are clearly the solutions, not the problems.  That will be our message."

NAIFA Webinar to Explore the Future of the Health Care Law

Diane Boyle and Matt Solak, two members of NAIFA’s Government Relations team, will present a webinar on the Affordable Care Act today at 3:30. “Health Care Reform – What’s Next?” will present up-to-date information on how the latest developments in federal health care reform will affect insurance agents and their clients.

Boyle and Solak will give some background, including NAIFA’s work that contributed to the repeal of expanded 1099 requirements, the introduction of legislation to correct harm done by the law’s medical loss ratio provision, and suspension of (and efforts to repeal) the CLASS Act.

They will also discuss the $1.058 trillion gross tax increase included in the health care reform law, and how the recent Supreme Court decision as well as the growing federal debt and deficit will affect future implementation of the law.

Concerns for 2013 include:

• New medicare taxes
• A cap on FSA contributions
• A patient-centered outcome research fee
• Exchange notification requirements for employers

Boyle and Solak will also cover the slew of consequential provisions due to go into effect in 2014, including the individual and employer mandates and implementation of health insurance exchanges.

The webinar is free to NAIFA members. It runs from 3:30 – 4:30 PM EDT today, and afterwards will be archived on the NAIFA website.

Register or view the archived webinar here.

Members of the media interested in registering for the webinar should contact Mark Briscoe at 703-770-8111 or mbriscoa@naifa.org

 

NAIFA Applauds Movement of House Bill to Remove Broker Compensation from the MLR

The House Energy and Commerce Committee today approved H.R. 1206, a bill introduced by Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.) that would remove insurance broker fees from the medical loss ratio (MLR) calculation in the Patient Protection and Affordable Care Act.

Convincing evidence shows that including broker compensation in the MLR has seriously harmed brokers who provide health insurance, as well as the individuals and small businesses they serve.

NAIFA has been a strong advocate for fixing the MLR provision in the health care law.

“Including insurance brokers’ compensation in the MLR is a bad idea, so we welcome progress toward getting their commissions removed from the calculation,” said NAIFA President Rob Smith. “Since the MLR went into effect, our members who provide health coverage have seen their compensation decrease dramatically. This doesn’t just hurt the brokers, but also their employees and, most importantly, the consumers who rely on them to obtain coverage and assistance in understanding the complex health care law.”

“Brokers provide myriad services, from analyzing clients’ coverage needs to helping individuals get claims approved to providing wellness programs for small businesses,” Smith added. “They are the de facto human resources departments for many small companies. These are services that no one else provides and that brokers cannot continue to provide if they are not fairly compensated.”