The package has won the support of two major groups following long-term care legislation: the Health Insurance Association of America (HIAA) and the American Association of Retired Persons (AARP). The groups today released a letter of support to members of Congress.
The consensus bill merges several proposals: the Grassley-Graham plan to allow a deduction for long-term expenses; a comprehensive long-term care expenses bill from Rep. Nancy Johnson (R-Conn.) and Rep. Karen Thurman (D-Fla.); and President Clinton's proposal to establish a $3,000 tax credit for long-term care.It is the most comprehensive legislation to date designed to increase the number of Americans with long-term care insurance.
"We all agree on helping people with their long-term care expenses," Grassley said. "We just differ in our approach. It makes sense to take everything we agree on and merge it into one comprehensive bill. The prospects for success are the strongest if we have a united front."
Graham said, "The high costs of long-term care can deplete hard-earned savings and threaten financial security, particularly in the event of an unanticipated nursing home stay. This legislation will make it easier for families to plan ahead and construct a safety net for life's uncertainties."
Grassley, Graham and John Breaux (D-La) have introduced the Long-Term Care Affordability and Availability Act of 1999 (S. 35). The measure allows a tax deduction for the long-term care insurance costs to encourage individuals to buy long-term care insurance.
President Clinton proposes a $3,000 tax credit for individuals with current long-term care needs. The tax credit would benefit those who need help with critical activities of daily living (such as eating, dressing and bathing) and receive in-home care. The family caregivers of those individuals or the individuals would take the tax credit.
The consensus proposal contains the tax deduction, the $3,000 tax credit and new consumer protection provisions. It is designed to help individuals with a variety of long-term care needs, both immediate and in the future.
Grassley and Graham plan to introduce the consensus proposal, called the Long-Term Care and Retirement Security Act of 2000, today.
Attachments:
(1) bill summary
(2) letter of support from the HIAA and the AARP
(3) long-term care fact sheet
1.Tax Deduction for the Premiums of Qualified LTC Insurance Policies ? would give individuals an above-the-line tax deduction for the cost of their qualified LTC insurance policy (as defined by HIPAA, section 7702B(b)). The applicable percentage of the deduction would be phased-in based on the number of years of continuous coverage of an individual who holds a qualified LTC policy. In the first year, individuals could deduct 60% of the cost of their policy. The percentage of the deduction would increase by 10% for each year the individual maintains continuous coverage through a qualified policy (with no greater than a 60-day lapse in coverage if a new policy is purchased) until it reaches 100% in the fourth year. An accelerated phase-in would apply to individuals aged 55 years and older. Their deduction would begin at 70% in the first year and increase to 85% in the second year, and 100% in the third year. The deduction would be capped at the age-based deduction levels that currently exist in section 213 of the tax code. Those levels are set to increase by inflation, but in 1997 they were $200 for those aged 40 or less, $375 for 41-50, $750 for 51-60, $2000 for 61-70, and $2500 over 70.
Cost Estimate (H.R. 2488, tax bill of 1999): $741 million over 5 years; $ 7.3 billion over 10 years.
2. Cafeteria Plans and Flexible Spending Arrangements: The bill would allow employers to include the deduction provision for LTC policies in "cafeteria plans" in which employees are able to choose from a variety of benefits offered by an employer for different types of care and "flexible spending accounts" in which employees set aside pre-tax dollars to pay for co-payments and deductibles on insurance plans and other services. Under these types of plans, an employee could deduct their portion of a premium paid for a long-term care policy.
Cost Estimate (H.R. 2488): $426 million over 5 years; $1.5 billion over 10 years
3.Consumer Protections The bill includes strong consumer protection standards for qualified LTC policies.
4. Credit for LTC Services and Caregivers ? the bill gives individuals with LTC needs or their caregivers a $3000 tax credit to help cover their LTC expenses. An applicable individual is one who has been certified by a physician as needing help with at least 3 activities of daily living, such as eating, bathing, dressing. The Grassley/Graham LTC tax credit would be phased-in over 4 years, equal to the number of years in which the tax deduction for LTC insurance policies is phased-in: $1000 in 2000, $1500 in 2001, $2000 in 2002, $2500 in 2003, and $3000 in 2004. The credit phases out by $100 for each $1000 (or fraction thereof) by which the taxpayer's modified adjusted gross income exceeds the threshold amount: threshold amount means $150,000 for a joint return and $75,000 for an individual return.
Cost Estimate (based on the President's 2001 budget proposal for a $3000 LTC credit): $8.8 billion over 5 years; $26.6 billion over 10 years
March 8, 2000
AARP-HIAA Joint Letter on Long-Term Care Tax Issues
Dear Senator/Member of Congress:
We are writing to express our strong support for two initiatives that will provide some help to millions of Americans who need long-term care services. We urge Congress to pass this year both a $3,000 long-term care tax credit for people who need long-term care services or their caregivers, and additional tax relief to help more Americans purchase private long-term care insurance. We hope that our joint support will encourage members of Congress from both political parties to reach across the aisle and to work together with the Administration to help Americans meet their growing long-term care needs.
Unless Congress begins now to take steps to address long-term care, an aging "boomer" generation will overwhelm our nation's patchwork long-term care system and leave millions of Americans unprepared for the heavy financial and emotional burden of long-term care. In 2020, one of six Americans will be age 65 or older ? 20 million more seniors than today. By 2040, individuals 85 and older (the group most likely to require long-term care) will more than triple to over 12 million.
Today, fully 40 percent of long-term care in this country is paid for by the individuals needing care or their families (28 percent) and the insurance that they purchase (7 percent). But without substantial assistance, the full cost of long-term care is out of reach of most families. The average cost of a one-year nursing home stay is over $46,000 ? and growing. Helping people pay for these services directly and helping them purchase quality insurance products should be part of our nation's answer to this long-term care need.
Tax Credit for Long-Term Care Services
The main providers of long-term care in our country today are family members ? typically wives and daughters. To help individuals or their family members pay for long-term care services, we recommend that Congress write into law the President's proposal for a $3,000 tax credit for people with long-term care needs or their caregivers.
Many older people who need long-term care today are maintaining some of their independence by relying on family members for assistance. A $3,000 tax credit would certainly not be enough to purchase all the long-term care services that a severely disabled person needs, but it would make a difference to many. While a tax credit would not reach many modest income individuals in need of long-term care (almost half of Americans age 65 or older do not file tax returns because their incomes are too low), it would be welcome relief for many family caregivers. Caregivers often lose wages and benefits, sometimes even jobs, to care for their loved ones. In short, these caregivers ? most often women ? may give up their own future income security to provide long-term care today for a mother or mother-in-law.
Tax Deductibility for Long-Term Care Insurance Premiums
At the same time that we provide a tax credit to help people pay for long-term care services, we also need to do more to encourage people to prepare for their own future long-term care needs. Stronger tax incentives for the purchase of private long-term care insurance coverage ? coupled with strong consumer protection standards ? would help individuals and families protect themselves against the financial risk of long-term care, give consumers much greater choice, and help ease the burden on public long-term care programs.
While the tax clarifications enacted as part of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) are a good first step, they are not enough. Due to the limitations imposed on the medical itemized deduction, HIPAA's tax benefits help primarily those workers whose employers contribute toward a long-term care insurance policy on their behalf (only 2 percent of the current long-term care insurance market). However, the vast majority of Americans who have long-term care insurance purchase individual policies. These people may deduct long-term care insurance premiums only if they itemize deductions and only if their medical expenses exceed 7.5 percent of adjusted gross income. Only 4.5 percent of all tax returns report medical expenses as itemized deductions.
To go beyond HIPAA, we recommend that Congress provide an above-the-line tax deduction for long-term care insurance premiums. The deduction also should be available, to the extent feasible, for the portion of employer-provided coverage paid by employees, and that long-term care insurance should be treated as a qualified benefit under cafeteria plans and flexible spending accounts. We also support updating the HIPAA consumer protection standards so that references to the January 1993 versions of the National Association of Insurance Commissioners' (NAIC) model act and regulations on long-term care are amended to refer to the January 1999 versions.
Other Long-Term Care Provisions
In addition to the tax credit for long-term care services, there are several other modest initiatives that we believe would help people manage their long-term needs. These include proposals to: enable states to build upon their current networks to provide family caregivers with support services such as respite care, as well as counseling and information; expand Medicaid eligibility for people in home- and community-based settings to enable states to provide services to nursing-home qualified beneficiaries with incomes up to 300 percent of the SSI limit without requiring a Federal waiver; encourage partnerships between low-income housing for the elderly and Medicaid; and provide access to private long-term care insurance coverage for federal workers and retirees and their dependents.
Clearly, we cannot solve the entire long-term care crisis facing America's families this year. And, our two organizations are unlikely to agree on a common agenda to achieve that. However, AARP and HIAA do agree on these steps at this time, and we encourage the Congress and the Administration to take the opportunity that our healthy economy provides to enact the provisions outlined above this year. If you have any questions, please contact Sharon Cohen, HIAA's Senior Vice President of Federal Affairs at (202) 824-1845 or scohen@hiaa.org or Tricia Smith, AARP's Senior Coordinator for Health Issues, Federal Affairs Department at 202-434-3770 or psmith@aarp.org.
Over 12 million people in the United States need help with basic activities of daily living and require long term care service. America can expect these numbers to double as the baby boom generation achieves senior status.
This bill is designed to take a step toward the end goal of helping Americans to prepare for their future long term care needs, while addressing the immediate needs of those who provide long term care for their family and friends in the present.
What is long term care?
Long term care services provide the help required by individuals with physical or mental disabilities to perform basic activities of daily life- including eating, dressing, and getting out of bed in the morning.
Who needs long term care?
Almost a quarter of the elderly (6.4 million people) have some long term care need. 5.3 million Americans between the ages of 18-64 need long term care. 400,000 children also have long term care needs.
How do people get long term care?
88 percent of people requiring long term care receive that care at home or in community based settings. Only 12 percent receive care in nursing homes or other institutional facilities.
Who pays for long term care?
More than $115 billion was spent in long-term care in the United States in 1997. This translates to 12 percent of national health spending. 66 percent of long term care is financed by the Medicaid program and by individuals and their families. Medicare provides for about 20 percent and private insurance only 7 percent.
How will your bill help?
Looking towards the future, our bill will address the need for Americans to plan for the future and by providing them with incentives to purchase long term care insurance. By motivating people in their 30s, 40s and 50s to plan ahead, we will provide savings to our public health care system and to individuals and the families of those who become too frail to care for themselves.
With our eyes on the present, this bill provides a $3000 tax credit for individuals with long term care needs and their families who are spending thousands of dollars out of pocket to ensure that long term care is appropriately provided.
