State advocacy in 2025: Navigating new challenges and opportunities

Following a presidential election, it as though all of the air is taken out of the room with discussions around the Tax Cuts and Jobs Act expiration, the Department of Government Efficiency and a federal Republican trifecta. But do not discount or ignore all of the current and potential activity we will see at the state level in 2025.

To understand what’s ahead, we must first reflect on the key outcomes of the 2024 state elections. While Republicans held all 23 of their current trifectas (meaning one party controls the General Assembly, the Senate and the governor’s office), Democrats saw two trifecta states (Minnesota and Michigan) return to divided government after holding their previous trifecta status for only two years. Further, some ballot initiatives gave us some insight into what to expect in the future on a couple of fronts — taxes and long-term care.

We began 2025 with virtually every state legislature in session and each of the legislators in those states as far from reelection as possible — which is why the first year after a large election is when we expect to see the most activity. Let’s look at what is keeping the state advocacy team at Finseca up at night.

Budgets

There is one glaringly significant difference (well, actually a few, but we will focus on one today) between how states operate and how the federal government operates. States must have a balanced budget year to year. They can’t raise the debt ceiling, and they can’t use creative accounting practices. This is why Finseca will keep a very close eye on state budget activity this year. Although the COVID-19 pandemic seems like a long time ago, states had until the end of 2024 to obligate any remaining COVID-19 relief funds. Many states used these funds to balance budgets, reduce consumer taxes or encourage business investment. Now they must find new funding sources to allow any of those items to continue. Which leads to these issues.

Taxes

States can balance budgets in any number of ways, but there are two tax concepts we will pay special attention to.

1. Wealth taxes. In 2024, six different states introduced legislation that would assess income tax on unrealized capital gains and/or net worth. Many of those same proposals from 2024 will be introduced again in 2025. So far, governors remain resistant to these proposals because they would put their states at a competitive disadvantage compared to neighboring states, but if one state takes the first step, others can follow.

2. Sales tax expansion. After seeing proposals introduced or discussed in Kentucky, Nebraska, Louisiana and Minnesota, the continued threat of assessing sales tax on financial or investment advice remains one of the most significant threats to the work this profession does daily. Finseca will continue to advocate against any tax that negatively impacts consumer access to holistic financial planning.

Standards of conduct 

We will begin this year by continuing to make steady progress on the adoption of the National Association of Insurance Commissioners Best Interest for Annuities Standard. We ended 2024 with 48 states adopting the standard, and the final two — New Jersey and the District of Columbia — should be across the finish line shortly. The NAIC standard and its wide adoption continue to demonstrate the success that can be achieved by ensuring the important balance of consumer protection while ensuring consumer access to advice.

This leads us to the only state that has not adopted the NAIC Best Interest for Annuities Standard — New York, which has adopted its own standard, Reg. 187 (Suitability and Best Interest in Life Insurance Transactions). Since the implementation of Reg. 187, data show that new policies and premiums in New York have lagged the rest of the country. Finseca has been relentless in advocating for changes to ensure that New Yorkers have access to financial advice without repetitive regulatory burdens impacting advisors. To that end, in January, the New York Department of Financial Services issued clarifications around two pain points advisors have faced since Reg. 187 took effect.

1. Simplified information for term policies. Basic term policies in New York no longer require extensive data collection (liabilities, assets, net worth, risk tolerance, etc.), aligning with practices in the other 49 states. 

2. Streamlined training requirements. Producers are no longer required to complete duplicative Reg. 187 training for each carrier, reducing redundant hours of training.

Our work in New York is not done, though, and we will continue to push for regulatory and legislative changes that achieve the balance needed between consumer access to advice and protections.

Long-term care 

Washington, the only state with a publicly funded long-term care program, had WA Cares upheld by more than 55% of the vote in November. With the program continuing for the foreseeable future, expect legislation to pass that would allow individuals who opted out of the program to opt back in, plus efforts to develop private sector solutions for coverage after the state benefit runs out. While copycat legislation has been introduced in some states, no movement has been seen at this time, and we aren’t expecting activity in 2025. But as Medicaid budgets soar, funding for long-term care will continue to be discussed, and Finseca believes innovative private sector products can and should be part of the solution.

The overall balance between state and federal activity 

Even with control of the federal government changing hands, we expect the constant balance we have become used to. Where the federal government doesn’t move, states will. Further, where blue states feel a Trump administration is moving too far to the right, they will work on the legislative and regulatory fronts to balance what they perceive to be imbalances.

Finseca’s state advocacy priorities will remain the same:

» Promote a holistic approach to financial security.

» Preserve and expand consumer choice.

» Adopt tax policies that inspire long-term planning.

» Foster a thriving financial security profession.

We will spend 2025 as we have every year, in partnership with our fellow joint trades (American Council of Life Insurers, National Association of Insurance and Financial Advisors, Insured Retirement Institute, and National Association for Fixed Annuities) to activate as necessary to achieve our mission of financial security for all. 

Melissa Bova joined the Finseca government affairs team in November 2021 as its first vice president of state affairs. She may be contacted at [email protected].