When it comes to the 2012 presidential election, insurance agents have, as industry insiders like to say, “skin in the game.”
In addition to being concerned with how the overall economy will perform under either a re-elected President Barack Obama or a first-term Mitt Romney, insurance agents are concerned that their taxes, their health insurance commissions, their place in the health insurance market and the flood and crop insurance that they sell could all be caught up in politics in Washington in 2013 and beyond.
Robert Rusbuldt, president and chief executive officer of the Independent Insurance Agents and Brokers of America (Big I), which represents 300,000 agency owners and their employees, points out that no matter which man wins the presidential election on Nov. 6, that person will have to work with Congress. And that means compromise.
“If it’s Governor Romney and the Democrats keep control of the Senate, compromises will have to be made, and vice versa, because the Republicans are likely to keep the House. Neither candidate is going to get everything they want,” he says.
However, Rusbuldt gives Romney an edge in working with Congress.
According to Rusbuldt, Romney proved to be “quite pragmatic” when he was governor of Massachusetts and he feels that Romney would be able to work out deals with a Senate run by Democrats while also dealing with Tea Party Republicans in the House.
“He’s not been really all that involved with the Tea Party movement, even though, of course, they’re supporting him in the presidential election,” Rusbuldt told Insurance Journal in an interview on the election and issues of concern to agents.
President Obama, on the other hand, might have more trouble working with Congress, he feels.
Rusbuldt shared his thoughts on the election in an interview with Insurance Journal’s Andrew Simpson. The two discussed sequestration and the so-called “fiscal cliff” as well as how the election could affect taxes, healthcare reform and the medical loss ratio, Dodd-Frank Wall Street reform and the future of federal insurance programs for floods, crops and terror risks.
‘Fiscal Cliff’ Politics
The first test for Congress– during the lame duck session before the new Congressional and presidential terms begin– will be whether and how to avoid a sequestration agreement that many predict would send the government and economy over the “fiscal cliff” because it triggers automatic steep budget cuts and tax hikes. The budget cuts and tax increases are set to take effect in January unless Congress can agree on a better plan to reduce the federal deficit by $1.2 trillion.
This will be a major challenge for either Obama or Romney, according to Rusbuldt, who is confident the worst will be avoided. He thinks the timing of how the challenge is settled, more than the substance of an agreement, could vary depending on which man wins the race for the White House next week.
“If Governor Romney wins, Congress will deal with the fiscal cliff issue after January 1 and make whatever changes they are going to make retroactive to January 1. If President Obama is reelected, we will see a very active lame duck, maybe a historic lame duck session of Congress that will deal with the fiscal cliff prior to January 1.
“So I believe the fiscal cliff will be addressed. It’s just a matter of the timing,” Rusbuldt told Insurance Journal.
The different approaches to taxes by Obama and Romney has been a major issue in the campaign and is one for agents as well.
Unless Congress acts, a number of tax breaks — payroll, estate, capital gains and gift among them– that affect many agents are set to expire and, depending on which man is elected, other taxes could go up and deductions could be eliminated under various proposals.
“There’s a host of tax things coming in 2013, if Congress does nothing. The burden on small business could be significant,” Rusbuldt said.
According to the IIABA leader, two-thirds of his group’s members are subchapter S corporations, which means they pay individual tax rates, not corporate rates. Currently, the corporate rate is 35 percent, and the individual top rate is 35 percent.
However, these Bush tax rates are set expire on January 1, when the top rate will go to 39.6 percent, from 35 percent. The corporate rate would stay at 35 percent.
“That’s an issue for all those that pay at the individual rate,” Rusbuldt said.
Interestingly, Rusbuldt said, both President Obama and Governor Romney support lowering the corporate rates from 35 percent to 25 percent. But what will happen to the individual rate paid by subchapter S owners?
“If the Bush tax cuts are allowed to expire on January 1, and the top rate goes to 40 percent, and the corporate rate is lowered to 25 percent, you’ll have small business paying 40 percent, and Fortune 500 companies paying 25 percent,” Rusbuldt said. “That is, for all the rhetoric we hear about small business, and everybody supporting small business, if that were to happen, that would be such a disparity between big business and small business, it doesn’t even make sense.”
Scheduled increases in capital gains and estate taxes are also a concern for agents as they try to make investment decisions or pass their businesses along to family members, Rusbuldt said.
In addition to lowering tax rates, Romney wants to “eliminate loopholes, deductions, credits and those sorts of things, which have not been fully specified yet,” according to Rusbuldt. But it’s not clear how the Romney strategy will play out.
“Not everybody in the Republican Party supports that view, and of course, the rubber will meet the road when we start talking about home mortgage interest deductions, and charitable contributions, and medical expense deductions, and all of those things that are itemized right now, and on the business side as well. So time will tell,” said the agent association executive.
Healthcare and the MLR
While President Obama has championed his healthcare reform law, the Affordable Care Act, dubbed Obamacare, Romney has vowed to repeal it even though it is similar to a law he enacted in Massachusetts when he was governor. In particular, he opposes the provision mandating that individuals purchase health insurance.
However, Romney has also said he supports certain provisions of Obamacare such as letting young people stay on their parents’ group plans until age 26 and requiring insurers to provide coverage for pre-existing conditions. At the same time, he has argued that states should be allowed to set up whatever health programs they choose without the federal government dictating the terms.
While Obama is expected to forge ahead with implementing Obamacare pretty much as it is, Romney’s path forward on healthcare is less clear. As Rusbuldt explains:
“Mandating that pre-existing conditions have to be covered without a mandate, an individual mandate, would create enormous problems for health insurers and for those paying insurance premiums. You’d see an incredible jump in insurance premiums because you’re not spreading the risk. Without an individual mandate, but maintaining some of the things like pre-existing conditions, it probably doesn’t work,” he said.
“When members of Congress or presidential candidates talk about some of the mandates, and some of these provisions, they have to make sure that it all works together, because once you start picking apart pieces of it, it creates issues and problems in other areas. Congress is going to have to be very, very careful if Governor Romney is elected in attempting to unravel Obamacare, to do it in a cogent way that makes sense in the marketplace.”
There is one particular provision of Obamacare that really irks independent agents. The Obama Administration’s Department of Health and Human Services (HHS) has ordered that agents’ commissions be included under what is called the medical loss ratio (MLR). This rule restricts how much of premium insurers can spend on administrative and non-medical expenditures. This has and will put added pressure on insurers to reduce all non-medical expenditures, including commissions, according to the agents association, which has been lobbying to have these commissions exempted from the MLR.
Rusbuldt does not see agents winning this MLR battle if Obama is re-elected and their fate under Romney is uncertain.
“In all likelihood, if President Obama is re elected, we will still be confronting the same problem with agent commissions under the MLR provision. Governor Romney, of course, is on the record as wanting to appeal Obamacare, and that includes the MLR provision. So we would have that addressed in that way. Again, in all likelihood, everybody is going to have to compromise, even if Governor Romney is elected because of what may or may not happen in the Senate,” Rusbuldt said.
The entire healthcare issue has grown in importance for IIABA as more of the country’s larger, traditionally property/casualty-focused agencies jump into the employee benefits field.
“Yes, there’s been a huge growth among independent agencies in employee benefits over the last 10 to 15 years,” Rusbuldt said. “That trend continues. There is a lot of cross marketing between those large commercial lines agencies with employee benefits. There’s a natural nexus there. It’s been a major growth area.”
In his interview with Insurance Journal, Rusbuldt also discussed the Dodd-Frank Wall Street Reform Act; how Romney, Obama and Congress may treat flood and crop insurance programs; and how control of the House and Senate affects committees that deal with insurance issues.
For the full interview, listen to these podcasts: