Tax Legislation's Implications on the Insurance Industry

The recently enacted tax legislation significantly reshapes the landscape for insurance companies across the industry, particularly within the health insurance market.

Here's what you need to know.

Tax Legislation's Impact on Health Insurers

One of the bill’s most significant impacts on the insurance industry stems from its modifications to the Affordable Care Act (ACA) marketplaces and Medicaid. Projections from the Congressional Budget Office (CBO) and the American Hospital Association (AHA) indicate a significant reduction in insured individuals.

We expect states to evaluate the Medicaid expansion, or lack thereof, in light of these changes. Providing affordable products through managed care approaches and price transparency may give states an upper hand in providing products to disrupted members.

This is in large part due to:

Stricter Eligibility Requirements and Reduced Subsidies

The bill introduces more restrictive requirements premium tax credit qualification in ACA marketplaces, effectively eliminating auto-enrollment for many. This, coupled with the expiration of enhanced premium tax credits, could lead to a higher cost of consumer entry. The Kaiser Foundation has projected that cost coverage from some individuals could be as high as 75%.

This may lead to more interest in health savings account eligible plans and alternative coverage through health needs sharing. It should be noted that efforts are underway to petition Congress, as PUP research has been circulated, encouraging restatement of the tax credits.

Medicaid Cuts and Work Requirements

The legislation includes cuts to Medicaid and imposes work requirements for certain able-bodied adults. These changes are anticipated to result in many low-income individuals losing their Medicaid coverage. As budgets are restricted, a focus on the total cost of care will be critical.

Increased Administrative Burden

Marketplace plans face higher compliance costs due to new income verification rules, the end of provisional eligibility, and uncapped tax credit repayment provisions. This necessitates significant financial investments in information technology and staffing to handle redesigned eligibility processes and increased data management. The instatement of 174a provides an opportunity to recoup some of the past and future research and development costs.

Market Instability and Reduced Enrollment

Changes may impact total enrollment amounts, which may be offset by new enrollments from work requirements as new employees enter the workforce. Federal Medicaid funding may also change, leading to state changes in your area.

Implications Beyond Health Insurance

While the most direct impact is on health insurers, other insurance sectors may also be impacted by tax legislation, including:

Life Insurers

The broader economic effects of the bill, including changes to tax policies and potential shifts in individual financial planning, could influence demand for certain life insurance products, such as income protection and long-term care hybrids.

Property & Casualty (P&C) Insurers

P&C insurers could be indirectly affected by the bill's economic policies, including inflationary pressures and changes to green energy tax credits and climate-related policies. Your ability to understand your policyholder data through deploying blockchain, data mining, and visualization will be important to weather the storms ahead.

Adapting to a New Landscape

The new tax legislation presents several opportunities for the insurance industry. Our dedicated insurance and tax teams can help you understand the bill’s impact, minimize administrative burdens, and create strategies to achieve your objectives.