How ‘Big Beautiful Bill’ Will Impact Insurance Industry

With major changes in tax policy and federal spending programs that affect healthcare, businesses, and estate planning, the recently enacted One Big Beautiful Bill Act (OB3) will have economic reverberations on markets that are critical to the insurance industry. The legislation builds upon and makes permanent many provisions of the 2017 Tax Cuts and Jobs Act (TCJA), while introducing significant changes to federal spending.

For the insurance industry, the effects of the OB3 may not be as dramatic as those that resulted from the TCJA, since it contains no specific insurance-related provisions. But in certain insurance sectors, the impact of this legislation may be revealed over several years to be fairly significant.

Looking out over the horizon, certain effects of the OB3 on the insurance industry are predictable.

Health Insurance

Coverage Retraction and Operational Complexity

The OB3 introduces nearly $1 trillion in Medicaid cuts and rolls back $170 billion in Affordable Care Act (ACA) subsidies. Among other impacts, these reductions are expected to force states to scale back Medicaid coverage, introduce work and reporting requirements for Medicaid enrollees, eliminate the ACA’s automatic reenrollment and shorten open enrollment windows, and terminate ACA enhanced premium subsidies created during the COVID-19 pandemic.

The nonpartisan Congressional Budget Office (CBO) projects these changes will increase the uninsured population by approximately 10 million by 2034, reversing a decade-long trend of growth in coverage.

Implications for Health Insurers

Health insurers face a potentially turbulent landscape, with several implications:

• Higher churn – With shorter enrollment windows and stricter eligibility requirements, insurers may experience more frequent lapses in coverage.
• Increased compliance costs – New income verification rules and uncapped tax credit repayment could add administrative burdens.
• Risk concentration – As healthier individuals exit the market, insurers may be left with higher-risk pools, resulting in increased medical loss ratios.
• Operational strain – Medicaid Managed Care plans may need to overhaul eligibility verification and engagement processes to remain compliant.

These dynamics may force insurers to reevaluate benefit design, pricing strategies and provider contracting to remain sustainable.

Life Insurance

Estate Planning and Market Shifts

The OB3 Act raises the estate tax exemption to $30 million for joint filers ($15 million for singles), indexed for inflation. This change will likely reduce the need for life insurance as a tool for estate liquidity among high-net-worth individuals.

Consequently:

• Life settlement activity may increase — Seniors may opt to sell policies for cash, especially amid rising healthcare costs.
• Turnover and repricing challenges — Insurers will need to manage increased policy lapses and reassess pricing models.
• Shift in product demand — There may be growing interest in income protection and long-term care hybrid products.

Strategic Considerations for Life Insurers

We would advise life insurers to monitor estate tax trends and model demand shifts, develop targeted marketing for new product categories, prepare for increased competition in the life settlement market, and reassess underwriting criteria and reserve strategies to reflect changing demographics and financial behaviors.

Property & Casualty Insurance

Tax Incentives and Risk Volatility

The OB3 restores 100% bonus depreciation for qualifying property placed in service between January 2025 and January 2030. This is likely to stimulate more capital investment by businesses, which may, in turn, increase demand for property and casualty (P&C) insurance products. With favorable depreciation, asset-heavy businesses can be expected to dispose of old equipment and buy new.

The legislation also increases the Section 179 expensing cap to $2.5 million, benefiting small and mid-sized businesses.

Together, these provisions may encourage reinvestment in property and equipment, spur demand for P&C insurance products as asset acquisition increases, and improve cash flow for businesses, potentially making coverage more affordable. These provisions will also likely create higher payout risk to insurers and require higher underwriting to manage risk.

Casualty Loss Deduction

Changes to casualty loss deduction rules may alter how insurers and policyholders handle claims for disaster-related losses. Previously, the casualty loss deduction was temporarily limited to losses resulting from federally declared disasters. That requirement was made permanent by the OB3 and expanded to include certain state-declared disasters starting in 2026.

This could:

• affect the frequency and severity of property and casualty (P&C) claims.
• shift the financial calculus for both insurers and insureds.
• require updates to underwriting models and reserve calculations.

Strategic Outlook: How to Prepare Now

The OB3 provisions will be implemented on a staggered schedule, with some taking effect in 2026 and others in 2027. This phased implementation gives the insurance industry time to adapt and engage in strategic planning.

To adapt to the new environment under the OB3, certain carriers should model multiple tax scenarios to anticipate future changes, reassess tax reserves and deferred tax assets, and evaluate estate tax implications on life insurance demand.

Additionally, health insurers can use the time to train brokers on ACA and Medicaid changes, develop campaigns to educate clients on policy impacts, and offer solutions to address churn and compliance complexity.

Conclusion

For the insurance industry, OB3 promises varied impacts across different sectors.

For the health sector, the most pronounced result will likely be volatility with coverage retraction, compliance burdens and risk concentration.

For life insurance, the future likely holds market realignment with estate planning changes and life settlement growth.

In the P&C sector, there is both opportunity and uncertainty given the OB3’s new tax incentives and concerns over the impact of casualty loss expansion.

Insurers that act decisively by adapting pricing, product strategy and compliance posture will be best positioned to thrive in this transformed landscape.

We’re Here to Help

If you have questions about the impact of the OB3 on your insurance company, we can help. Contact your JLK Rosenberger team member, or click here to contact us. We look forward to speaking with you soon.