THURSDAY, APRIL 8, 2010 

                                                Big “I” National News

On the Hill
Health Care Reform Hits Small Businesses with New Rules
Regardless of size, agencies may face new requirements and some potential new grant and tax credit opportunities.

Last week’s IN&V included “What Does the New Health Care Reform Law Mean for Agents?”, a piece examining the health care reform from a health insurance sales standpoint. This week, IN&V looks at the new law from a small business perspective. Whether you have a small, medium or large agency, you may be facing many new requirements and some potential new grant and tax credit opportunities. Much like the health insurance delivery aspect, many of the specifics affecting small businesses will be somewhat of a question mark as the law’s implementation occurs over the next four years.

For example, starting in 2011, small businesses will be eligible to receive federal grant money to set up “wellness initiatives” that some Big “I” members may be interested in pursuing. Aside from stating that such grants will be available, the law does not specify who would be eligible, how small businesses would apply, or what exact “wellness initiatives” they would need to undertake. All of these issues would be left to future rulemaking by the Department of Health and Human Services (HHS) and the states. However, despite the uncertainty over many of the specifics of the new law, the Big “I” can provide some generalities about what the bill may mean for small businesses.

Although the new law does not contain a true employer mandate, by 2014, employers with more than 50 employees will face a penalty if they do not offer health insurance coverage AND at least one of their employees gets coverage through an Exchange and gets a premium credit. The penalty will be a $2,000 per full-time employee penalty (the first 30 employees will be excluded from the calculation). In determining whether a business has 50 employees, part-time employees will have their aggregate hours combined, with 30 hours a week counting as a full-time employee. For example, if an agency has two part-time employees working an average of 15 hours per week, that will count as one full-time employee. Meanwhile, employers that do offer health insurance coverage but have at least one employee who receives a premium credit through an Exchange are required to pay the lesser of $3,000 for each employee who receives a premium credit or $750 for each full‐time employee.

Some small businesses may be eligible for temporary tax credits to help them adjust to the new law. In 2010, small businesses with less than 25 employees and average annual wages of less than $50,000 are eligible for tax credits of up to 35% of the employer’s contribution toward the employee health insurance premium. The full credit will be available to employers with 10 or fewer employees and average annual wages of less than $25,000. The amount of the credit will decrease as the business size and average wages increase, to a maximum of 25 employees and average wages of $50,000. Employers must subsidize at least 50% of their employees’ premiums in order to be eligible for the tax credit. In 2014, this tax credit will change, and the eligible small businesses will have tax credits up to 50% of the employer’s contribution; again the amount of the credit would phase down as the size and wages of the business increase. After 2014, these credits would only be available for two years to any particular small business.

All employers, regardless of size, will have to abide by a litany of new administrative requirements. In 2011, all employers must include the aggregate cost of employer-sponsored health benefits on each W2 tax form. If an employee receives health insurance coverage under multiple plans, the employer must disclose the aggregate value of all such health coverage but exclude all contributions to HSAs and Archer MSAs and salary reduction contributions to FSAs. Also in 2011, all employers will be required to enroll employees in a new national public long-term care/disability program called the “CLASS Act” unless the employee opts out. By 2013, employers will have to provide written notice to employees on the existence of state-based exchanges. Starting in 2014, employers that have a waiting period before health insurance coverage becomes effective cannot have that waiting period exceed 90 days.

These are just a few of the many changes on the horizon for small businesses as the health care reform law is implemented. Big “I” members will undoubtedly continue to have many questions about how the new law will impact them, as health insurance professionals and small businesses; and the Big “I” and each state association will continue to work to ensure that agents and brokers have the tools necessary to both survive and thrive in this new health care world.

Click here for a short chart summary of the health care reform law.

John Prible (john.prible@iiaba.net) is Big “I” vice president of federal government affairs.





P-C Trends
Insurance Employment Makes National Economic News
Despite overall rise in private sector employment, insurance industry slashes nearly 10,000 jobs.

Last Friday, many macro-economic watchers waited anxiously for the Bureau of Labor Statistics (BLS) to release its most recent unemployment report (The Employment Situation: March 2010). To many people’s surprise, the big loser from February to March 2010 in employees was the insurance industry. Fortunately, the story is actually much brighter than last Friday’s BLS data might indicate.

Rarely has a release of employment data captured more media attention than the February to March data released last week. Much hand wringing took place over expectations of increases in employment, but offsetting that optimism the impact of federal government employment from administering the decennial census. As it turned out, for the first time since the autumn of 2008, private sector employment did increase from February to March by 123,000. What many did not see coming was that insurance industry employment had worked against the growth trend from February to March by slashing nearly 10,000 jobs.

Although the data clearly indicate a loss, it needs to be viewed in context. While “Insurance Carriers and Related Activities” posted a loss of employment in the sector of 9,200 jobs (about .4 of 1%) and that was larger than other similar industry groupings, overall insurance is actually one of the more stable industries from an employment perspective. As the chart below illustrates, while the insurance field might have had a relatively bad 30 days from February to March of 2010 compared to other industries, looking at the last four years, insurance was one of the few industries that still locked in growth from March of '07 to '08. Employment losses from March '08 to '09 and '09 to '10 were less on a percentage basis than many of the other industries agents insure every day.


 
Source: Bureau of Labor Statistics and data from the March 2010, March 2009 and March 2008 The Employment Situation News Releases

Paul Buse (paul.buse@iiaba.net) is president of Big I Advantage^® and a licensed p-c agent.





L-H Leads
Tax Time is Here and Now
With tax changes on the horizon, the urgency to lower taxable income is increasing.

As millions of Americans file their income tax returns (or pay the estimated tax and extend them), now is a perfect time to reach out to them to ask them to get together with you to review their long terms savings objectives to determine if there are more tax efficient ways to accomplish their goals. While this may obvious, there are many avenues available to people who take the time to develop their goals with the internal revenue code in mind.

For example, if a client needs to save for retiree health expenses, they can use a Medical Savings Account (if offered by their employer) to prefund current and future retiree medical expenses because the usual “use it or lose it” requirements of Flexible Spending Accounts do not apply. Agency principals who do not have a Medical Savings Account should consider having one. To save for college expenses, both Section 529 plans, which allow people to save and have the funds grow tax-free, and prepaid tuition plans (available in most states for in-state institutions) are options.

When it comes to saving for retirement, there are Roth IRAs, the new defined benefit 401(k) plan, 412 plans, profit sharing/4019(k) plans and SEP plans. With so many retirement vehicles, a business owner or self-employed person or employee can save toward retirement and while lowering their current taxable income. This is important because many tax provisions are available to people at certain income thresholds, for example$120,000 or $150,000. When people lower their current taxable income, it provides a way to save on a tax advantaged basis and also opens the opportunity to take further deductions because they have lowered their adjusted gross income (AGI).  So when someone contributes to a 401(k) plan, they not only lower their current taxes but they also lower their AGI. This, in turn, can allow them to deduct a portion of their kids’ college expenses or make a Roth IRA contribution.

The need to lower taxable income – in a legal way – will only become more acute in the coming years as payroll taxes increase to pay for health insurance reform and income taxes increase as the Bush tax cuts of 2001 expire. Of course, being able to lower current taxable income assumes that the individual has enough discretionary income to be able to reduce their take-home pay by contributing to a retirement plan. Now is the time for independent agents to talk with customers about ways to efficiently to meet overall financial goals by lowering their tax burden.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and an IA l-h contributing editor.


On the Hill
Big “I” Joins Forces to Urge Congress to Extend the National Flood Insurance Program
Associations send letter to Senate and House leaders highlighting flood program’s importance and urgency.

Today, the Big “I” joined forces with other prominent associations in a joint letter to congressional leadership on both sides of the aisle and from both chambers in support of the reauthorization of the National Flood Insurance Program (NFIP) which expired on March 28, 2010.

The program is currently expired and no new policies are being issued, therefore the letter states, “it is critical that such reauthorization is retroactive to address the gap in protection resulting from the hiatus. Failure to reauthorize the NFIP expeditiously when Congress returns will severely harm real estate markets, putting consumers at risk of uninsured losses and potentially putting additional tax money at risk to cover relief efforts.”

The Senate is not scheduled to return to Washington, DC until April 12 and the Big “I” is hopeful they will act immediately on an extension and that it will be retroactive to March 28.

“If Congress fails to reauthorize the NFIP, it will still be paying for post-disaster relief for flood victims, yet it will be unable to collect premiums for renewing current flood insurance policies, which amounts to $2.85 billion annually. Devastating storms in the northeast underscore the need for Congressional action to reauthorize the NFIP immediately.”

The group also requests a long-term NFIP extension. The program has been extended through numerous short term extensions for the past few months in addition to actually expiring twice.

In addition to the Big “I” as the only agent/broker group, the letter was signed by the following organizations: American Insurance Association, National Association of Mutual Insurance Companies, Property Casualty Insurers Association of America, The Financial Services Roundtable, Mortgage Bankers of America, The National Association of Home Builders and National Association of Realtors.

Margarita Tapia (margarita.tapia@iiaba.net) is the Big “I” director of public affairs.


Forms and Substance
Insuring Personal Trusts
Trust usage is on the rise for tax and liability purposes—but what about the insurance coverage gaps?

Sometimes a trust will take ownership or possession of autos, homes or other property. This can occur following an insured’s untimely death or a trust may be established for someone who hasn't reached the age of maturity. Increasingly, trusts are being used in estate planning to convey assets in a manner that attempts to minimize taxes and liability. In any case, such property and the parties involved must be properly insured.

While trusts have been around for years, there appears to be an increasing use of them for tax and liability purposes, as directed by estate planners, CPAs and attorneys. Only recently has ISO begun to address insurance issues in the personal lines area. The primary problem with using traditional HO and PAP policies to insure trusts is that these forms are designed for individuals and the policy language is such that, if the named insured is a trust (particularly one that is not a person, such as a corporation or LLC) there will most likely be major coverage gaps. Since coverage applies largely to the named insured and resident spouse and "family members," if the trust is not a natural person, then it cannot have a spouse or family members.

ISO has now addressed the trust issue to a great extent from the standpoint of personal property and liability exposures. Under its HO2000 program, ISO makes it relatively easy to insure homes that have been placed in trust. In this program, there is a "Residence Held in Trust" (HO 05 43 10 00) endorsement designed for this exposure. The policy is written in the name of the Trust and the Trustee. As long as the dwelling is occupied by the Trustee, Grantor or Beneficiary it can be written on the HO policy; otherwise it must still be written on a dwelling policy. The Trust gets the benefit of all Section I & II coverages. The party that resides on the premises—Trustee, Grantor or Beneficiary—gets the benefit of all coverages except Section I A & B (dwelling and other structures).

However, a residence owned by a corporation would not qualify for this new endorsement and commercial insurance for the trust, along with HO4 coverage for the occupants, may continue to be necessary. However, there are companies that will pretty much do what they want to do when it comes to a home owned by a trust. As usual, it's important to check with the carrier to see if they have established their own criteria for insuring trusts. If so, agents should question the underwriter about how the policy language (particularly that regarding coverage for "you" and "family members") will be interpreted.

Unfortunately, there is not yet an equally simple way to insure a trust in the ISO PAP program. The closest is the PP 03 33 06 98 endorsement "Certificate of Insurance - Trusts" which can only be used, under ISO rules, if a vehicle is jointly owned by the trust and a named insured. The certificate (which is just evidence of liability coverage) says, "The vehicles described in the Schedule, if owned jointly by the named insured and a trust, are insured for automobile liability coverage under the policy indicated in the Schedule above. If this policy is terminated, notice will also be mailed to the Trustee(s) named in the Schedule."

Otherwise, following pure ISO rules, the vehicle is supposed to be covered by a Business Auto policy since the trust can't be a named insured under ISO PAP rules. Even if the policy was issued with the trust as named insured, the broadest coverage is available only to "you" (the named insured and resident spouse) and "family members" It’s unlikely that the trust has a resident spouse and family members. Permissive users would have some coverage while operating that vehicle, but none otherwise.

So, currently, the only viable "PAP" method is to issue the PAP in the name of the person(s) to whom the vehicle is entrusted and/or to both that person or persons and the trust jointly. If insurable interest is an issue, another possibility, in working around the manual rules, would be for the trust (if legal owner) to execute a written lease of at least six months to the person(s) having custody of the vehicle so they can insure it under a PAP and additionally insure the trust as if they were the lessor or lien holder.

Again, the alternative (and probably the "ISO-preferred") method would be for the trust to obtain a Business Auto policy and attach Drive Other Car coverage for the person/spouse entrusted with the auto, being sure to name any other family members specifically.

Bill Wilson (bill.wilson@iiaba.net) is director of the Big “I” Virtual University.

To read this entire article and access a comprehensive report called “Insuring the Personal Trust,” click here.  If you do not know your Big "I" Web site user name and password, e-mail  logon@iiaba.net to request your login.