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Big ā€˜Iā€™ Secures Tax Break for Pass-Through Agencies

On Friday, the IRS issued final regulations governing Section 199A of the tax code. The rule confirms that owners and shareholders of insurance agencies and brokerages organized as pass-through entities are eligible for a tax deduction of up to 20% on “qualified business income”—regardless of taxable income level. The deduction is available for taxable years 2018 through 2025.

The new deduction reduces the top effective tax rate on pass-through income to approximately 29% from 37%. For those in the 24% bracket, it can reduce the rate to as low as 19.2%.

The regulation is a significant government affairs victory for Big “I” member agencies. Since passage of the 2017 tax reform law, the Big “I” has been aggressively advocating before Congress and the Trump Administration to ensure that insurance agencies and brokerages organized as pass-through entities fully benefit from tax reform.

The final regulation is substantially similar to a draft regulation released in August. Under the regulation, owners and shareholders of insurance agencies and brokerages where the owner or shareholder’s annual taxable income does not exceed $315,000 for joint filers and $157,500 for single filers in 2018 can take a 20% deduction on qualified business income.

For insurance agencies and brokerages where the owner or shareholder’s annual taxable income exceeds these levels, the deduction is available for qualified business income derived from the sale and servicing of insurance products. However, the deduction may be limited on income derived from consulting or financial services activities if that non-traditional income exceeds certain de minimis thresholds. Additionally, above these same income levels, the total amount of the deduction cannot exceed 50% of employee W-2 wages, or 25% of W-2 wages plus 2.5% of capital assets, such as tangible property purchased for the business—whichever is greater.

Owners and shareholders of insurance agencies and brokerages organized as pass-through entities can take full advantage of the 20% deduction, no matter their taxable income levels, because the IRS does not consider the sale and servicing of insurance products to be a “specified service trade or business.” Other professions such as doctors, lawyers, accountants, stock brokers and certain consulting and financial advisory activities are a “specified service trade or business” under the regulation.

Owners and shareholders of “specified service trades and businesses” with annual taxable income between $315,000 and $415,000 (joint) and $157,500 and $207,500 (single) will slowly see the deduction phased out. Those above $415,000 (joint) and $207,500 (single) are prohibited from utilizing the new deduction.

While a major victory Big “I” members, the regulations are complex. The Big “I” encourages members—especially those who derive income from non-traditional activities—to consult a tax professional to determine how the new deduction specifically impacts their businesses.

Jennifer Webb is Big “I” federal government affairs counsel.


Gov. DeWine Reappoints Froment as Insurance Director; McCloud to Head Ohio BWC

A few days before his official swearing in, Gov. DeWine made appointments to fill nearly his entire cabinet. All cabinet appointees are new to their roles, with the exception of Jillian Froment, who DeWine reappointed to continue to serve as the Director of the Ohio Department of Insurance.

Director Froment has spent the past eight years at the Ohio Department of Insurance in several high-level positions including Assistant Director, Chief Administrative Officer and Deputy Director. In May of 2017, Gov. Kasich appointed her Director.

In addition to serving as the head of ODI, Froment serves in prominent leadership roles for two national insurance organizations focused on consumer protection and the modernization of state insurance regulation. In November, it was announced that she was re-elected chair of the Interstate Insurance Product Regulation Commission as well as secretary-treasurer of the National Association of Insurance Commissioners Midwest Zone.

Gov. DeWine also appointed Stephanie McCloud to head the Ohio Bureau of Workers’ Compensation. McCloud is a veteran executive with a diverse background that includes 20 years of experience in public administration and workers' compensation. She most recently served as senior vice president at Sedgwick Claims Management Services while managing her private Columbus law firm, McCloud Law LLC.

McCloud began her career as a staff attorney at BWC before serving as legal counsel to both former Governor George Voinovich and the Ohio Department of Transportation. She later joined the office of former Attorney General Jim Petro, first as senior deputy attorney general before advancing to chief counsel.

In addition to these developments, Larry Householder was elected earlier this month to serve as the Speaker of the Ohio House of Representatives. Given this change, it is not yet known who will be named to lead the House Insurance Committee. Senate legislative committee announcements are also forthcoming from Larry Obhof, who was re-elected by his peers to serve once again as the Senate President.

What’s ahead in 2019?

As is the norm in the start of a new General Assembly, the first order of business will be the next two-year budget.

As for insurance issues, another attempt will likely be made to pass legislation to help OIA members who write group health insurance by requiring health insurance companies to provide claims data to those with fifty or more enrolled employees in their group. Unfortunately, Senate Bill 227, which would have achieved this, failed to make it across the finish line in December before the end of the last legislative session – mostly due to running out of time.

OIA supports this initiative, along with other groups such as the Ohio Association of Health Underwriters and the National Federation of Independent Business, because allowing risk advisors and employers access to claims data will help Ohio employers to properly assess their health care options and make better coverage decisions.

In addition, guidance and rules are yet to be developed by the Ohio Department of Insurance for the new insurance-specific Ohio cyber law. This law has several provisions, including investigation and breach requirements that all agencies, regardless of size, will be required to comply with should they learn that a cybersecurity event has or may have occurred. In certain instances, notification of a breach may even be required to the Ohio Department of Insurance.

Large agencies will also be required to develop and maintain a comprehensive written cybersecurity plan and exercise due-diligence requirements over third-party service providers.

An effective date is not yet available for Senate Bill 273, but it will likely be around mid-March. Stay tuned -- OIA will continue to keep you informed on these new cyber requirements as more information becomes available.

Learn more about SB 273.


In Reversal, Flood Insurance Program Resumes Normal Operations During Shutdown

Last Friday evening, the Federal Emergency Management Agency (FEMA) announced that the National Flood Insurance Program (NFIP) will resume the normal sale of new insurance policies and the renewal of expiring policies.

This order rescinded an earlier decision that halted sales operations by the NFIP because of the current government shutdown and lapse in appropriations.

The reversal came after banking, insurance and political leaders from both parties criticized the halting of sales of new and renewal flood policies. Critics said that FEMA was ignoring the intent of Congress to keep the NFIP operating during a shutdown expressed when on Dec. 21, 2018, it passed legislation that reauthorized the NFIP until May 31, 2019.

Insurance, Banking Groups Balk at Limits on Flood Insurance Operations During Shutdown

Critics also argued that any disruption in sales of flood insurance could hold up real estate closings. “FEMA’s unexpected decision will complicate and delay loan closings for borrowers who are required to carry flood insurance and seek NFIP coverage for as long as the government shutdown continues,” the American Banking Association (ABA) said in a statement earlier yesterday.

FEMA said all NFIP insurers have been directed to resume normal operations immediately and advised that the program will be considered operational since Dec. 21, 2018 without interruption.

Sen. John Kennedy, R- La., a sponsor of the NFIP reauthorization bill, was among the lawmakers trying to get FEMA to restart normal operations.

“It’s taken a lot of phone calls to Washington, D.C., but FEMA finally came around to what I recognized from the beginning. My reauthorization legislation, which was signed by President Trump into law, prevents any disruption to the National Flood Insurance Program,” said Sen. Kennedy.

Rep. Maxine Waters, D-Calif., ranking member of the House Committee on Financial Services, was among those who also urged FEMA to reconsider what she called its “harmful and incorrect interpretation of its authority” and resume its “important work of providing flood insurance.”

This article was originally published by Insurance Journal on December 28, 2018.

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OIA Continues Push for Legislation to Help Employers Make Better Health Insurance Decisions

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Two OIA members recently urged members of the Ohio House Insurance Committee to pass legislation that would require health insurers to release certain aggregate claims information to group plan policyholders.

OIA member Victoria McCoy of Associated Insurance Agencies, Inc. (featured in the picture to the left) in Westerville testified in conjunction with OIA’s Government Affairs Manager Carolyn Mangas. Barbara Gerken of First Insurance Group, who is also an OIA member, testified in support of the bill on behalf of the Ohio Association of Health Underwriters (OAHU).

Sponsored by Sen. Matt Huffman (R-Lima), S.B. 227 will provide a solution to a problem that OIA members have brought to our attention over the last several years.

By allowing risk advisors and employers access to claims data, Ohio employers can make better decisions regarding properly assessing health care options to potentially reduce their health care costs.

While this claims data is typically available to employers with 100-plus employees, it is not available to those that fall below this threshold. The lack of this data hinders the ability of risk advisers and employers to pursue additional funding arrangements that have become available in the last several years. While this legislation was originally drafted to apply to all employer groups, it now only applies to those with fifty or more enrolled employees in their group. The rationale for this change was that this range of employees is medically underwritten the same way as the 100+ employer group market.

Ultimately, S.B. 227 would empower risk advisors and employers with the ability to better design a health insurance program that balances the level of risk and reward.

Notably, both Louisiana and Texas have similar laws in place to require health insurers to release claims data.

Several others testified in support of S.B. 227 in addition to OIA and OAHU, including the National Association of Independent Business – Ohio. The only known opponents of the bill include the National Multiple Sclerosis Society, who have cited concerns that employers could identify employees with serious health conditions and discriminate against them.

Prior to receiving hearings in the House Insurance Committee, S.B. 227 passed the Ohio Senate unanimously. With time running short before the end of the legislative session, OIA is advocating for passage of this bill out of the House Insurance Committee. A committee vote is expected to be scheduled for next week. OIA will keep members apprised of developments on this initiative as they occur.

Also see: Ohio Independent Agents Urge Senators To Help Businesses With Health Insurance Options


Medical marijuana and its impact on Ohio workers' comp

With the upcoming implementation of medical marijuana in Ohio, you and your commercial clients may be wondering what impact, if any, this change will have on the Ohio Bureau of Workers’ Compensation (BWC) and its programs? BWC recently put together a fact sheet with information to help you understand the impact that this change will have on Ohio workers’ comp.

What does Ohio's medical marijuana law say?

In 2016, the Ohio General Assembly set up the framework to legalize medical marijuana in Ohio, effective Sept. 8, 2018.

It was approved for certain medical conditions, including pain that is either chronic and severe or intractable, PTSD, and traumatic brain injuries.

At this time, the only legal forms of medical marijuana will be edibles, oils, patches, plant material and tinctures. Vaporization is permitted. It cannot be smoked or combusted. Home growth is prohibited.

The Ohio Department of Commerce is tasked with regulating the licensure of medical marijuana cultivators and processors, as well as the laboratories that test medical marijuana. The state of Ohio Board of Pharmacy will license retail dispensaries and register patients and their caregivers.

Additionally, the State Medical Board of Ohio will regulate physicians’ requirements and procedures for applying for and maintaining certificates to recommend medical marijuana and maintain the list of conditions for which medical marijuana can be recommended.

What is the impact on the new law on the Ohio BWC?

The impact of the new law on BWC and its programs is limited.

It does not adversely affect the Drug-free Safety Program, will not require BWC to pay for patient access to marijuana, and expressly states that an employee whose injury was the result of being intoxicated or under the influence of marijuana is not eligible for workers’ compensation.

Specifically:

  1. Nothing in the law requires an employer to accommodate an employee’s use of medical marijuana.
     

  2. The law does NOT prohibit an employer from refusing to hire, discharging, or taking an adverse employment action because of a person’s use of medical marijuana.
     

  3. The law specifies that marijuana is covered under “rebuttable presumption.” In general, this means that an employee whose injury was the result of being intoxicated or under the influence of marijuana is not eligible for workers’ compensation. This is the case regardless of whether the marijuana use is recommended by a physician.
     

  4. While the law does not specifically address reimbursement for medical marijuana recommended for injured workers, Ohio law already has rules and statutes in place that limit what medications are reimbursable by BWC.

    • Administrative code provides that drugs covered by BWC are limited to those that are approved by the United States Food and Drug Administration. Marijuana has not been approved by the FDA and remains a Schedule I illegal drug under federal law.
       

    • BWC-funded prescriptions must be dispensed by a registered pharmacist from an enrolled provider. Medical marijuana will be dispensed from retail marijuana dispensaries, not from enrolled pharmacies.
       

    • BWC only reimburses drugs that are on its pharmaceutical formulary, which is a complete list of medications approved for reimbursement by BWC. Drugs not on the list are not eligible for reimbursement, and under BWC’s current rules, it cannot be included in the formulary, nor is it otherwise eligible for reimbursement.

What can employers do?

If you have not done so already, the best way employers can protect their workers and themselves is to establish a drug-free workplace, or, if they already have one, to review and update it if necessary.

This is important because certain sections of the new law reference the use of medical marijuana in violation of an employer’s drug-free workplace policy, zero-tolerance policy or other formal program or policy regulating the use of medical marijuana.

For what this means to your specific workplace, consult your human resources or legal department.
 

View BWC fact sheet

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