Crunch Time for Healthcare Reform

Beginning this week and likely extending though late July, reforming the health care system and the health insurance structure that supports it will be front and center in Congress.

Central to the debate for NAIFA members marketing health insurance is the question whether agents will continue to play a central role in the delivery of health insurance to businesses and individuals.

For NAIFA’s members marketing life insurance and annuities, the question is whether taxes involving life insurance and annuities will be used to help pay for any new health care and insurance structure.

Background:
Since April, NAIFA members have been intensely lobbying members of Congress on the health reform issues back home, and in Washington staff has been doing the same. Since May, NAIFA’s constituent and staff lobbying teams have been fighting the life insurance and annuity tax issues. Every NAIFA and AHIA member is encouraged to participate in a July 15 Congressional fly-in to present their case directly with their Representatives in Congress. For details, please see www.naifa.org/flyin.

Elections Count:
President Obama and many Members of Congress campaigned last fall on a platform of providing affordable health insurance to all Americans--especially the 47 million Americans not now covered by health insurance. For Members of Congress who campaigned on the issue with President, the feeling is strong that the time to deliver on that promise is now. The feeling is so strong that some lawmakers have been heard to say recently that they cannot expect to campaign for reelection next year unless they redeem their health reform pledge this year.

June/July Congressional Activity:
Work to craft a plan or plans has been underway since the new Congress was sworn in last January. Many trial balloons have been floated containing new and old ideas, and many hearings have been held. With timing now becoming acute, actual plans are beginning to surface that combine various ideas into comprehensive blueprints.

First out of the box earlier this month was release of a “draft of a draft” from the Senate Committee on Health, Education, Labor and Pensions (HELP). Starting on June 22, the Senate Committee on Finance has scheduled time to craft its version of a health care reform bill. By late June/early July, House leadership is counting on a proposal emerging that will meld together ideas championed by the three House committees of jurisdiction: Ways & Means, Energy & Commerce, and Education & Labor. Both the House and Senate have set aside time in July for floor debate on the health reform/insurance bills. Congressional leaders hope that President Obama will then hit the road during August to sell the ideas in the plan or plans that have been adopted by both chambers of Congress. Timing-wise, this is a very ambitious timetable.

Health Insurance Reform Issues Confronting Agents:
In the health insurance debate, two overriding issues impacting agents are emerging:

The role of the agent.
The “draft of a draft” from the Senate HELP Committee creates a group of entities called “navigators” to educate, explain to and assist the public in the selection of and enrollment in chosen health insurance plans. Navigators may NOT be insurers, or anyone compensated by insurers. The role of the agent would be performed by these “navigators.”

A “public” plan.
A health insurance plan underwritten by the federal government would be available to the public through a State-based health insurance exchange. This public plan is designed to compete against private health insurance plans. The public plan design would most likely be patterned on Medicare or Medicaid. A competitive edge against private plans would likely be achieved through government subsidies for premium costs. As Nancy Ann DeParle, chief of the White House Office on Health Reform observed last April...“(A) public plan is something that’s sponsored by the government, and therefore has very low or almost nonexistent administrative costs, compared to others. It doesn’t have the need to have brokers out selling (emphasis added); it wouldn’t have the need to have a lot of costs and profits, the way private plans would. So it has that advantage.”

These two factors alone would likely spell the end of agent participation in the private health insurance marketplace. As described in the HELP Committee draft bill, navigators would perform exactly the same functions as agents (although frequently agents do more—e.g., act as advocates for insured claimants)--but agents cannot be navigators. With regard to the “public” plan, there is very little expectation that private health plans could compete for long against any plan subsidized by the federal government.

Other Elements in HELP Draft

Other features of the HELP Committee draft:

• Individual Mandate/Employer Pay or Play. The HELP draft calls for an individual mandate as well as a “pay-or-play” rule applicable to employers. Employers would have to provide the same coverage options to all workers, with employer payment of premiums the same except where employers wish to pay more of a low-paid worker’s share of the premium. NAIFA and AHIA could support a personal mandate if Congress were to adopt stringent community rating and preexisting condition restriction coupled with guaranteed issue requirements.
• Gateways. The draft creates state level “gateways” (another name for exchanges or connectors or brokers) through which the “navigators” would help the public select a plan.
  
• Plan offerings. In addition to the ‘public plan,” navigators would assist the public in choosing from among “qualified health insurance” plans. The “qualified” insurance that can be offered through gateways is likely to pose major hurdles to private insurers. For example:
  
  
1. An insurer offering a “qualified insurance plan” could not keep more than 20% of a group plan premium or 25% of the premium for individual coverage. The rest of the premium has to go for benefits or wellness program. At year-end, insurers would have to rebate to policyholders any premium amounts in excess of 20% to 25% not used to pay for benefits or wellness programs.
2. Premiums could vary only by community rating area (CRA). States would establish the CRAs, using recommendations from the NAIC. Only four rating variables could be used: family structure, actuarial value of the benefits package, CRA, and age. However, no premium could be more than twice as much as the lowest premium for the same policy.
3. Preexisting conditions and experience rating would be disallowed; guaranteed issue and renewability are required.
4. No qualified health insurance policy could have a lifetime or annual limit on benefits.
5. No state marketing or related consumer protection rules would be preempted.

The HELP Committee draft is widely seen as likely the most expansive and expensive of the health reform bills being unveiled this month. The two Congressional tax writing committees tend to be more centrist when facing the task of finding the taxes necessary to pay for dramatic expansions in health care. All parties to the debate agree that Congress faces an exceptionally painful array of benefits versus tax cost choices in order to bring forth any health reform bill.

Life Insurance/Annuity Tax Pay-Fors:
Congress has settled on no specific ways to pay for what could turn out to be upwards of a $1 trillion new cost over ten years, but has plenty of options on the table. Two put forth by the Obama Administration on May 12 that directly impact life insurance and annuity values are:

• Business Interest Deduction Limitation. A business of any size that acquires permanent life insurance to protect itself against the economic loss of the death of key personnel, officers or owners could see an increase in its cost of borrowing, experience a reduction in the availability of credit, impairment of a company’s ability to manage its risks—or all three. The Obama Administration has proposed that tax deductible interest on business loans (from any source) would be reduced because of a company’s ownership of life insurance on any employee, officer or less that 20% owner.

• Dividends Received Deduction (DRD). This is an extremely technical provision that is applied to a life insurance company’s separate accounts. Its primary impact would be on policyholders of life insurance companies with substantial variable life insurance and annuity business. The bottom line is that it takes money out of insurance companies that could be used for other purposes—such as increasing policyholder values.

NAIFA Constituent Lobbyists and Staff Weigh In

Since May 12, members of NAIFA’s constituent lobbying key contact system and the Washington lobby team have worked to discourage members of the House Ways and Means Committee and the Senate Finance Committee from using the business interest limitation deduction or dividends received deduction to help pay for health insurance reform. NAIFA will continue these efforts earnestly.

Bottom Line:
It is crunch time in the Congressional effort to enact meaningful health care/insurance reform. Through AHIA’s Rx for Health Care – The Advisor’s Perspective, NAIFA and AHIA have offered numerous ideas numerous times on how to achieve meaningful progress toward universal coverage. Everyone knows that it will cost over a trillion dollars to do it and there may be upheavals in the current way of doing business in the health care and health insurance fields.

All NAIFA members interested in preserving a future role for the agent need to share their views with their members of the Senate and House of Representatives in person, by phone, in writing by fax or via email or fax at NAIFA’s Legislative Action Center.

There is no time to delay.

NAIFA Staff Contact: Michael Kerley, Senior Vice President – Federal Government Relations at (703) 770-8155 or; Diane Boyle, AHIA Executive Vice President, at (703) 770-8252 or; Dani Kehoe, NAIFA Outside Counsel.