Federal LTC Program Offered.

Congress' plan is aimed at making long-term-care coverage affordable. Meanwhile, insurers watch the House and IRS for new tax rules.

Congress has laid the cornerstone for a program of long-term-care insurance for federal civil and military personnel and retirees that could serve as a model for the private sector.

Under the Long-Term Care Security Act (H.R. 4040), federal employees would pay the premium with no government subsidy. President Clinton supports the legislation, which could involve some 20 million current and retired federal employees and family members.

Federal personnel managers expect to launch the program by October 2002 and are starting work on the administrative details.

Federal workers would buy long-term-care insurance under group rates with savings of 15% to 20% compared with the cost of individual policies.

Janice Lachance, director of the federal Office of Personnel Management, said OPM officials plan to offer a flexible benefits package that will include nursing-home care, home health care, assisted-living facilities and adult day care.

Participating employees would send their premiums directly to insurers under a debit system, such as automatic withdrawal from a checking account, the government said.

The Health Insurance Association of America and the American Council of Life Insurers are among the legislation's supporters. HIAA President Chip Kahn said the legislation serves as a model for private employers to provide similar coverage for their employees and dependents. Such an opportunity in the private sector "would help millions of Americans protect themselves against the often catastrophic costs of long-term care," Kahn said in a statement.

David Martin, chairman of the ACLI's long-term-care committee, said the private sector should take note of the legislation, which he said would establish a "model program that [private] employers nationwide should consider following." ACLI said it represents 87% of the private long-term-care insurance industry.

The industry supports passage of legislation to provide a 100% "above-the-line" tax deduction for private long-term-care insurance premiums and an annual tax credit of $3,000 for long-term caregivers. Such deductions would be similar to deductions permitted for individual retirement accounts and 401(k) contributions.

Bill Would Increase Tax Exemption for Small Insurers

A bill introduced in the House of Representatives would increase the premium level of small, rural property/casualty insurers that is exempt from federal tax and would close loopholes that allow foreign companies and other large insurers to shelter certain income from taxes.

The Small Property and Casualty Company Deduction legislation, H.R. 5076, co-sponsored by Reps. Jim Nussle, R-Iowa, and Jim Ramstad, R-Miss., aims to close tax loopholes and clarify which insurance companies are eligible for the tax exemption and how they are taxed.

"We're not talking about the giants of Wall Street here, we're talking about...small companies that insure property in the $20,000 to $30,000 to $40,000 range in a very limited geographic area," Nussle said in a statement.

The bill proposes an increase in the exemption level from $350,000 to $531,000 for these insurers and makes other tax adjustments based on inflation that has occurred since 1986 when the current exemption criteria were established.

Under current law, an insurer with as much as $350,000 in direct or net written premium, whichever is greater, is exempt from federal taxes. The law also allows a company with direct or net written premiums between $350,000 and $1.2 million to elect to be taxed on their net investment income. The proposal would increase the bracket to direct or net premiums between $531,000 and $1.8 million.

Insurers Await IRS Rule on Taxation of Acquisitions

Insurance companies are awaiting a final ruling by the Internal Revenue Service that could affect the sale and purchase of their assets.

The Alliance of American Insurers, the American Insurance Association, the National Association of Independent Insurers, the National Association of Mutual Insurance Companies and the Reinsurance Association of America jointly have asked the IRS for equitable treatment in the final ruling. Other trade groups, such as the American Council of Life Insurers, have petitioned the IRS independently for fair application of the pending rules.

The five trade groups submitted a document to the IRS in July noting that enactment of the Financial Services Modernization Act of 1999 will "increase the frequency of sales and purchases of insurance companies." As a result, the industry and the public need clear federal guidance on associated tax issues and liabilities, as to the final application of the IRS ruling for the industry.

The insurance industry doesn't want to be treated differently than other sectors of business when it comes to buying and selling companies, said Steve Broadie, vice president for tax and financial issues for the Alliance of American Insurers. But it does want clear and equitable rules to follow, he said.

Allan Stein, tax counsel for the American Insurance Association, said the industry, in short, wants the insurance buyer to avoid taxes imposed by the IRS.