While a huge amount of airtime, printer’s ink and digital media coverage will be spent on events in Washington, D.C. this year, there are only three things that the insurance professional should focus on.
The first is the last several weeks of June, when the Supreme Court will decide the fate of the healthcare reform law,the Patient Protection and Affordable Care Act (PPACA).
If the law is overturned, several years of planning for the total implementation of the law, scheduled for 2014, will become irrelevant, and efforts to reverse the law’s provisions now in effect will rapidly ensue.
Although Washington folks will talk of resurrecting some of the law’s provisions in new legislation, it is unlikely that any of these will come to fruition. No one will seek to subject themselves to the political cost of dealing with this issue for a number of years.
For example, two generations of congressional Democratic majorities have disappeared in the wake of first, an unsuccessful effort to adopt uniform healthcare policy in 1994, and second, a successful effort to establish a national healthcare policy, i.e., PPACA. The latter cost the Democrats their majority in 2010.
If only the individual mandate is reversed, that will set in motion strong efforts to undo many of the law’s provisions. It is unclear how successful either supporters or opponents of the current law will be, but most professionals believe the health insurance industry will expend huge energy seeking to reverse or undermine the consumer protections mandated by the law.
The second important date will be the election which will set the stage for the most important part of the year for life insurance professionals—action by Congress after the election on tax issues.
Tax policy is the linchpin for the sale of most life insurance products, and this November and December will be far more important than others.
The Congressional Budget Office (CBO) brought this to America’s attention in the most direct way through a report it issued last week titled, Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013.
In a phrase, the CBO said that “tax and budget changes scheduled for 2013 could create a development some observers have referred to as a ‘fiscal cliff’.”
That’s because, under laws scheduled to go into effect between 2012 and 2013, the impact of expired tax cuts and fiscal restraint policies imposed in 2011 and 2012 will impact the economy by $221 billion in 2013.
For the insurance industry, the key change will be the tax cuts imposed during the Bush administration in 2001 and 2003, including changes in the estate tax and other policies. These were extended, some on a more generous basis than in the initial legislative actions, in late 2010.
Besides the Bush-era tax cuts, other provisions scheduled to expire include those that lower income and payroll tax rates and limit the reach of the alternative minimum tax.
Added to that, the automatic enforcement procedures established in the Budget Control Act of 2011 will lower spending in 2013 compared with outlays in 2012. And other provisions of the law will generate additional deficit reduction in 2013, the CBO said.
Taken together, the CBO estimates, these policies will reduce the federal budget deficit by $607 billion, or 4.0 percent of gross domestic product, between fiscal years 2012 and 2013.
In other words, the focus for politicians during the current electoral campaign will be to stand up for deficit reduction.
That will shift, however, after the election is over.
The implication of taking $607 billion out of the economy in one year, reducing growth, in the projection of the CBO, to 0.5 percent in 2013, is something even the most aggressive fiscal hawk won’t contemplate.
Congress is currently just talking, which is something it does best, but there will be no consensus on what to do about the potential impact of all the proposed revenue increases and budget cuts currently scheduled until after the election.
The most likely scenario is that Congress will decide to extend the tax cuts scheduled to expire at the end of 2012 for one more year, until 2014.
However, professionals say, if the Republicans sweep, the Democrats are likely to try to limit extension of the Bush tax cuts only to singles earning $125,000 and couples earning $250,000.
If there is divided government, the most likely scenario, then Republicans will likely try to save every dollar of the Bush tax cuts they can, according to the consensus of the tax professionals.