The Wall Street Journal - December 18, 1995
Christina Duff, Staff Reporter of The Wall Street Journal

The balanced-budget and tax-cut bill passed last month provides the insurance industry with some gems: tax incentives for consumers to buy private long-term care, for instance. "We're excited about this," says Jack Dolan, spokesman for the American Council of Life Insurance, an industry group.

Congress and the White House still are trying to reach agreement on a final bill, of course. But it hasn't looked this good for the insurance industry in some time. Washington used to be a bad word around the water cooler, when President Clinton was trying aggressively to pass the health-care overhaul that insurance agencies claimed would cripple some of them. Things started to turn around when the Republican-controlled Congress proposed encouraging Medicare beneficiaries to buy alternative health coverage in the private market. And that was just the beginning.

With the balanced-budget bill, "they win big time," says Bonnie Burns, a Santa Cruz, Calif., consultant and consumer advocate. "It's a Christmas present tied up with a big red bow."

Some insurance groups lobbied for these changes; others put the equivalent of a plate of cookies out for Santa. From 1993 until May of this year, big insurance companies and industry groups gave a total of $520,778 to members of the House Ways and Means Committee, and $905,100 to Senate Finance Committee members, according to the Center for Responsive Politics.

A number of the insurance provisions wouldn't do much more than drum up business for insurance companies, and some also would be a boon to consumers. For instance, long-term-care insurance payments would be tax-free. But other changes could hurt consumers, some watchdog groups say.

One provision, some contend, would turn the clock back to a time when there weren't any laws to stop insurance agents from selling the elderly multiple, useless medical policies. That is what happened in the 1980s to one elderly couple in Watsonville, Calif. Making $838 a month in Social Security, they bought five medical insurance policies they didn't need from an agent who planted himself at their home until 11 p.m. Three weeks later, they bought four more.

Then came a 1990 federal bill that has made such cases almost extinct. It contains language strictly prohibiting the sale of benefits -- mainly for cancer and hospital stays -- that overlap Medicare.

Now, however, what was meant to be a mere technical change has spiraled into language in the balanced-budget bill that relaxes those restrictions. The ironic thing, consumer advocates say, is that buying lots of medical insurance -- which would be akin to a car owner buying separate policies for the windshield, the bumper and the gear shift, while at the same time taking full collision insurance -- usually encourages lots of doctor visits. And that, in turn, drives up health-care costs.

"The fear is that we'll go back to an extraordinary time when agents can pressure the elderly into buying duplicate plans," says Donald Gartner, an assistant district attorney in Santa Cruz County, Calif., who handled many of these cases in the late 1980s.

Hogwash, say companies that stand to benefit. Aflac Inc., the largest provider of cancer policies, lobbied for several years for the new language, and its political action committee has contributed a total of $44,000 to key congressional members since 1993. The Columbus, Ga., company says its policies don't duplicate Medicare coverage. Instead, they help fill the gaps between medical coverage and such nonmedical expenses as travel to and from treatment and additional home care. "It's simply not true that we're trying to undo something" that protects the elderly, says senior vice president Kathelen Spencer.

Elsewhere in the bill is a provision that clears up how long-term care contracts should be considered for tax purposes. Treat them as medical contracts, the bill says, therefore making payments to the insured tax-free. That would be a bonanza for private insurance firms -- particularly because the bill doesn't discuss situations in which employers could sell insurance to workers themselves to control costs, thus shutting out the insurance companies.

Those who would reap rewards from the bill include the largest long-term care providers, including Aflac, General Electric Co.'s Amex Life Assurance Co. unit and a Bankers Life Holding Co. unit. The provision also would put another arrow in the quivers of big life-insurance companies such as Prudential Insurance Co. of America and Metropolitan Life Insurance Co., because consumers would be allowed to exchange their life-insurance contract for a long-term care contract, tax-free.

Still another provision, says Mr. Dolan of the American Council of Life Insurance, would encourage many more companies to offer so-called accelerated death benefits than the 215 that already do. These increasingly popular policies provide the terminally ill, including people who have the AIDS virus, with life-insurance payments before death. Currently, the patients have to pay taxes on the amount they get that exceeds what they put in. The bill, however, makes that amount taxfree.

Among those that stand to benefit from such a provision are relatively new "viatical" companies. These firms, such as Dignity Partners Inc. of San Francisco, buy life-insurance policies from patients, pay them a portion of their death benefit and become the beneficiary of the policies. Regulation of the seven-year-old industry is spotty; in September, a federal judge ordered the largest viatical-settlement company, Life Partners Inc., to turn its policies over to a third party because it ran afoul of securities laws.

Not all of the budget-bill insurance provisions are group gifts. One narrow change allows life-insurance companies to record a capital loss on real estate they own as an ordinary loss -- but only in the specific instance that they foreclose on a mortgage. Sound targeted? It would keep the loss from diminishing whatever capital gains are recorded -- a helpful change, since such gains would get preferential tax treatment under the new bill.

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Buying Insurance

Major insurance industry contributors to members of the House Ways and Means Committee and Senate Finance Committee from 1993 through May 1995

AMOUNT

American Council of Life Insurance $49,998

Prudential Insurance Co. of America 48,000

Aflac Inc. 44,000

Massachusetts Mutual Life Insurance 43,000

Metropolitan Life Insurance 39,599

Independent Insurance Agents of America 27,451

Blue Cross & Blue Shield Association 26,086

Source: Center for Responsive Politics
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