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An 'insider' view: Are lawmakers targeting all insurance abuse?
A friend sits among those in the inner sanctum, and we sat down recently to talk over coffee. I thought we’d be dwelling on health insurance reform, but my friend said the administration has moved on.
Published 4/1/2010 » More From This Issue
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A friend sits among those in the inner sanctum, and we sat down recently to talk over coffee. I thought we’d be dwelling on health insurance reform, but my friend said the administration has moved on.
Published 4/1/2010 » More From This Issue
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My long-standing friend in the business is a Chicago broker who happened to be an early backer and advisor in the late ’90s to then Illinois State Senator Barack Obama. My friend now sits among those in the inner sanctum, and we sat down recently to talk over coffee. I thought we’d be dwelling on health insurance reform, but my friend said the administration has moved on.
“There is serious thinking going on about all the abuses in the insurance business,” I was told. “For example, the inside cash value in life insurance has to be taxed.”
When I objected, my friend broke in, “No, you don’t get it. Any growth in cash value will be taxable income. This has nothing to do with tax basis and everything to do with closing a loophole where insurance companies can hide behind actuarial mumbo jumbo to shelter money. We don’t want tax shelters out there.”
I started to defend the inside buildup but was interrupted.
“There is serious thinking going on about all the abuses in the insurance business,” I was told. “For example, the inside cash value in life insurance has to be taxed.”
When I objected, my friend broke in, “No, you don’t get it. Any growth in cash value will be taxable income. This has nothing to do with tax basis and everything to do with closing a loophole where insurance companies can hide behind actuarial mumbo jumbo to shelter money. We don’t want tax shelters out there.”
I started to defend the inside buildup but was interrupted.
“Let’s get to the benefit arena,” my friend suggested, and I agreed. Though I was already a bit aggravated, I had no idea what was ahead.
“First, there’s group term life. The idea that the first $50,000 is provided by an employer free of taxation is absurd. So all group life will be taxable in the future.”
After a bit of dialog as to why the tax-free benefit was a social value, especially to the middle class, my friend remained adamant that group life will be taxable. I asked, “so the actual cost will be taxable income to the employee?”
“No way. That would give a break to the older fat cats with big incomes - so we kept the Table I concept but made it better.”
“How better?”
“We tripled it. That way we triple the tax and most of it will be paid by the older folks. We need to transfer their wealth into taxes anyway. Oh, and did I mention underwriting? There won’t be any. Everyone is guaranteed issue. Of course, all groups will pay the same price, too.”
I was still reeling from this when my friend brought up federal regulation of insurance. Not regulation of federal charters, regulation of the bottom lines: insurance company profits and broker commissions.
“You insurance guys will have a salary cap, and a profit cap. It will work like the NFL only better, with personal income capped at $100,000 per year, and insurance company profits capped at $1 million a year. That will bring down premiums. So will the commission cap, of course. No broker will be allowed to charge extra fees on any benefit plan, and the percentage commission will top out at 1 percent.”
“One percent won’t cover costs,” I said. “No one will want to sell for so little.”
“That’s the broker’s problem. If they don’t want to sell products then the new federal programs we are creating will just have to fill the void.”
I was almost apoplectic by now, and my friend was clearly enjoying the chat. I made one final try at preserving my sanity.
“Of course,” I said, “voluntary benefits will not be affected.”
“Why not? Anything sold at work is a benefit, therefore subject to these rules. And we haven’t even discussed the changes to 401(k) and similar abuses. Plus, after we take care of benefits, there will be plenty of other work, like getting rid of those unfair tax-free benefits from life insurance and disability plans.”
For those of you not already ahead of me on this, April Fool’s! I may have influential friends in Chicago, but if any of them have insider knowledge, they’re not talking to me. Time will tell what happens in Washington. If history is any kind of teacher, the reality will be even stranger than my musings.
“First, there’s group term life. The idea that the first $50,000 is provided by an employer free of taxation is absurd. So all group life will be taxable in the future.”
After a bit of dialog as to why the tax-free benefit was a social value, especially to the middle class, my friend remained adamant that group life will be taxable. I asked, “so the actual cost will be taxable income to the employee?”
“No way. That would give a break to the older fat cats with big incomes - so we kept the Table I concept but made it better.”
“How better?”
“We tripled it. That way we triple the tax and most of it will be paid by the older folks. We need to transfer their wealth into taxes anyway. Oh, and did I mention underwriting? There won’t be any. Everyone is guaranteed issue. Of course, all groups will pay the same price, too.”
I was still reeling from this when my friend brought up federal regulation of insurance. Not regulation of federal charters, regulation of the bottom lines: insurance company profits and broker commissions.
“You insurance guys will have a salary cap, and a profit cap. It will work like the NFL only better, with personal income capped at $100,000 per year, and insurance company profits capped at $1 million a year. That will bring down premiums. So will the commission cap, of course. No broker will be allowed to charge extra fees on any benefit plan, and the percentage commission will top out at 1 percent.”
“One percent won’t cover costs,” I said. “No one will want to sell for so little.”
“That’s the broker’s problem. If they don’t want to sell products then the new federal programs we are creating will just have to fill the void.”
I was almost apoplectic by now, and my friend was clearly enjoying the chat. I made one final try at preserving my sanity.
“Of course,” I said, “voluntary benefits will not be affected.”
“Why not? Anything sold at work is a benefit, therefore subject to these rules. And we haven’t even discussed the changes to 401(k) and similar abuses. Plus, after we take care of benefits, there will be plenty of other work, like getting rid of those unfair tax-free benefits from life insurance and disability plans.”
For those of you not already ahead of me on this, April Fool’s! I may have influential friends in Chicago, but if any of them have insider knowledge, they’re not talking to me. Time will tell what happens in Washington. If history is any kind of teacher, the reality will be even stranger than my musings.
Marty Traynor is vice president of voluntary benefits at Mutual of Omaha. He can be reached at [email protected].
