|  Home   |  Site Search   |  Tax News & Views  |

Go to our Special Report on tax law changes.

Clinton Signs Health Insurance Reform Law

Wednesday, August 21, 1996

Deloitte & Touche OnLine

President Clinton Wednesday signed into law the Health Coverage Availability and Affordability Act of 1996. The new law ensures the portability of health insurance benefits even for those with pre-existing conditions, increases the tax deduction for the self-employed, and offsets the expense by phasing out the interest deduction for corporate-owned life insurance policy loans.

Focusing on the act’s guarantees for covering individuals with pre-existing health care conditions, Clinton said the legislation "seals the cracks" in the current health insurance system. Sen. Ted Kennedy, D-Mass., and Sen. Nancy Kassebaum, R-Kan., joined Clinton in praising the act’s health insurance guarantees.

The president also highlighted the increase in the deduction for the self-employed, which makes insurance "more affordable to our workers," he said.

The health insurance reform act increases the self-employed health insurance deduction to 40% in 1997; 45% in 1998 through 2002; 50% in 2003; 60% in 2004; 70% in 2005; and 80% in 2006 and thereafter.

Clinton signed two bills into law this week, the other being the small business tax bill. And, he is expected on Thursday to sign a third, the welfare reform bill.

The White House hopes the president will get a boost in the polls from the bill signings and from the Democratic National Convention next week. At least one poll now shows GOP Presidential nominee Bob Dole has narrowed Clinton’s lead in the 1996 election to four percentage points.

Other Benefits: The act also establishes a tax deduction for long-term care premiums and expenses, excludes from income employer-provided contributions for long-term care insurance, and excludes from income long-term care benefits received.

The act makes health insurance organizations eligible for special Internal Revenue Code Section 833 benefits currently provided to Blue Cross/Blue Shield organizations, and provide tax-favored treatment for accelerated death benefits under life insurance contracts.

COLI Disallowed: As a revenue offset, the bill disallows interest deductions for corporate-owned life insurance policy loans under which interest is paid or accrued on after Oct. 13, 1995.

The act also raises revenue by penalizing individuals who give up their citizenship in order to avoid paying U.S. taxes, and eliminates the interest allocation exception for certain non-financial corporations.

Modifications Advocated for Check-the-Box Rules: The proposed "check-the-box" regulations were hailed as a step forward for simplicity and efficiency at an Internal Revenue Service hearing Aug. 21. Witnesses also said some tinkering was needed.

The regulations (PS-43-95) would make it easier for unincorporated domestic and foreign entities to elect their business tax status.

Stefan Tucker of the National Realty Committee said he foresees conflicts arising between different states and between states and the federal government over how businesses should be classified. He also opposed a 16-month wait for businesses to change their classification, and he said there needed to be more guidance on limited liability companies.

Robert Swiech, of the American Petroleum Institute, spoke of the regulations’ effect on "tax partnerships" as entities that exist only because of U.S. tax law, the use of "limited liability" rather than "unlimited liability" with respect to the default rule for foreign eligible entities, and the authorization of the classification election by only those members who are U.S. taxpayers.

Thomas Rutledge, of Ogden Newell & Welch in Louisville, Ky., said the regulations are unclear about when a foreign entity has limited liability.

R. Douglas Bramhall of the California Franchise Tax Board advocated having a single member limited liability corporation classified as a corporation.

Michael Lux of Deloitte & Touche disagreed.

"I think a blanket rule that any single member limited liability corporation will automatically be classified as a corporation will be contrary to the thrust and spirit of these ... regulations," Lux said.

Mark Brumbaugh of Coopers & Lybrand recommended the IRS explain the procedures it uses for establishing the "per se corporation" list of entities that would be classified as corporations.