The Trump administration just passed the 100-day benchmark around the time this issue of InsuranceNewsNet went to press. Three major issues affecting the insurance and financial services industry remain in the forefront. Two of those issues — tax reform and health care reform — face a fight in Congress, while the third issue — the Department of Labor’s fiduciary rule — could wind up being a done deal.
Here’s a rundown of those issues as of press time.
Health Care Reform Heads to the Senate
After squeaking through the House of Representatives by only one vote needed for passage, the American Health Care Act (AHCA) moves to the Senate. And that’s where things could get bogged down.
Key Republican senators say they want to write their own version of the health care bill, and they don’t appear to be in a big rush to complete the task.
“We’ll write our own bill,” Sen. Lamar Alexander, R-Tenn., told Bloomberg, although he added that senators would consider pieces of the House bill. “Where they’ve solved problems we agree with, that makes it a lot easier for us.” Alexander is chairman of the Senate health committee.
Whereas the debate over coverage for pre-existing conditions was a major stumbling block for the AHCA in the House, the Senate is expected to focus its debate on Medicaid expansion.
To get any bill through the Senate, moderate and conservative wings of the GOP will have to come together. The GOP holds a 52-48 majority in the Senate, meaning that Republicans can lose no more than two votes and still pass the bill.
Those two Republican votes are crucial because Senate Democrats are united in their opposition to any repeal-and-replace of the Affordable Care Act. Here are some of the sticking points that the bill could face in the Senate:
» Medicaid: The House-passed bill would bring the most widespread change to the program since it began in 1965. But some of these changes, such as capping federal funding, would provoke divisions among Republicans.
» Uninsured rates: Earlier this year, the Congressional Budget Office estimated that the House bill would mean the loss of coverage for 24 million people. Many analysts expect that number will be higher when the CBO scores the newest version.
» Tax credits: Some GOP senators have said they oppose the bill’s age-based tax credits. Some describe these credits as “Obamacare Lite.”
» Planned Parenthood funding: The House bill would defund Planned Parenthood for a year. A handful of Senate Republicans oppose this provision.
Further complicating things in the Senate is that the Senate rules won’t allow them to bring the bill up for a vote without waiting for a CBO score on the bill. It could take one to two weeks for the CBO to finish its analysis, which the Senate parliamentarian would review.
If the Senate passes its own bill, that legislation will go back to the House. The House can then approve the Senate version or negotiate a compromise with senators. Any compromise bill would need to be approved by the House and Senate.
Tax Reform: Some Action Is Probable
Beltway analysts agree something will happen that can be called “tax reform.”
Whether it’s the wholesale re-organization of the tax code favored by House Speaker Paul Ryan, R-Wis., or streamlining/eliminating some deductions and calling it tax reform remains to be seen.
President Donald J. Trump rolled out a preliminary tax plan in late April, a one-page document that called for slashing the federal income-tax rate to 15 percent for corporations, small businesses and partnerships of all sizes.
It imposes a one-time tax on about $2.6 trillion in overseas earnings by U.S. companies. Trump proposes condensing the existing seven individual income-tax rates to three, cutting the top rate from 39.6 to 35 percent.
Also, he would end a 3.8 percent net investment income tax that applies only to individuals who earn more than $200,000 a year, repeal the alternative minimum tax and eliminate the estate tax. Estate tax repeal has been on the table before, but always managed to survive.
Odds of significant tax reform are pretty low, say many analysts. After all, the early returns on the Trump-Congress working relationship are not good.
The Department of Labor fiduciary rule might be on its way to a final conclusion by the time you read this. What was expected to be a game-changer — the election of President Donald J. Trump — has not delivered much for rule opponents.
The reasons are numerous, but suffice it to say that the DOL was too far down the road with this rule to reverse it, especially when it didn’t make Trump’s A-list of priorities.
However, the new administration made some concessions to rule opponents with its 60-day delay. The new plan is for the rule to go into effect June 9, but the department introduced “transition exemptions” allowing the industry to ease into full compliance.
The transition period is most important as it applies to the Best Interest Contract Exemption and Prohibited Transaction 84-24. The transitional exemptions require adherence to impartial conduct standards only.
“You are allowed to receive compensation during the transition period that would otherwise be prohibited — commissions,” explained Bradford P. Campbell, former assistant secretary of the DOL and counsel at Drinker Biddle & Reath.
In fact, agents and advisors can continue to sell variable and fixed indexed annuities under 84-24 for the rest of the year, Campbell said, as long as they adhere to impartial conduct standards. That means three things:
» Use the best interest standard — in other words, the fiduciary process. “Using the next seven weeks to get your fiduciary process completed in place and ready to use is crucial because it’s not only the legal standard you have to meet on the front end, it’s the standard you have to meet on the back end to avoid a prohibited transaction for receiving a traditional commission,” Campbell explained.
» Charge no more than reasonable fees.
» Make no materially misleading statements.
The DOL is not expected to delay the rule again, he added.
Here are the key measures in the House-passed version of the American Health Care Act:
• Mandates: It guts the IRS requirement that people face a fine for not purchasing health insurance.
• Tax credits: Income-based subsidies enabling people to purchase insurance in the individual market will be replaced with refundable tax credits based on age.
• Medicaid: The Medicaid expansion is frozen immediately. In two years, the states have the choice of adopting a block grant for the program or coming up with a new formula based on population instead of need. Work requirements have been added for most able-bodied recipients who aren't pregnant or caring for a child under 6.
• High-risk pools: The bill provides $130 billion to states over 10 years for high-risk insurance pools to cover the most expensive to insure. An additional $8 billion will assist people with pre-existing conditions.
• State waivers: States can obtain waivers so insurers don't have to offer benefits packages that include maternity care and mental health coverage. Waivers can also be obtained to charge sicker people and people with pre-existing conditions more. Those people would most likely then go into the high-risk insurance pools.
• Taxes: It repeals every tax in the Affordable Care Act, including the 0.9 percent tax on couples making more than $250,000 and a 3.8 percent tax on investment income.
• Health savings accounts: The measure increases the allowable contribution limits of health savings accounts.
• Other: It continues to permit people under the age of 26 to stay on their parents' insurance.