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LTC Bullet: How Two Wrongs Can Make a Right: An Open Letter on Tax Deductibility to Congresswoman Nancy Johnson

Thursday October 1, 1998


Rep. Nancy Johnson's (R-CT) Long-Term Care and Retirement Security Act of 1998 (HR 4472;
introduced 8/6/98) is on hold in light of new cost estimates from Congress.

The original estimate of $200 million was revised to $1.8 billion by Congress' Joint Committee on Taxation earlier this month.

The bill would amend the Internal Revenue Code to allow a 100 percent deduction for the LTC insurance premiums of all individuals who are not eligible to participate in employer-subsidized long-term care health plans. The above-the-line deduction would apply also to an employee's spouse and dependents.

Rep. Johnson's office reaffirmed the Congresswoman's commitment to LTC legislation in a letter
to supporters following release of the new estimate. The letter stated, however, that the new cost figure will make her work next year more difficult.

This disappointing news gave Center for LTC Financing President Stephen Moses an idea. Why not use the revenue to be saved by fixing the criminalization debacle and permanently controlling Medicaid planning to pay for the cost of full tax deductibility for long-term care insurance?

Moses' letter to Representative Johnson proposing this solution follows. With the letter, he also sent copies of "The Magic Bullet: How to Pay for Universal Long-Term Care" and "LTC Choice: A Simple, Cost-Free Solution to the Long-Term Care Financing Puzzle." (These reports are available for purchase from the Center by calling 206-447-1340 or consul-
ting our web site at


September 30, 1998

The Honorable Nancy Johnson
U.S. House of Representatives
Washington, DC 20515

Dear Representative Johnson,

Thank you for notifying me and the Center for Long-Term Care Financing about the disappointing news concerning HR 4472. I know that your hopes were dashed, along with all of us who worry about long-term care financing, by the discovery that true deductibility for LTC insurance would cost $1.6 billion more than originally anticipated.

Ironically, however, this bad news gave me a good idea. What if we could find a new non-tax revenue source that would more than make up for this unfortunate shortfall and solve another important social problem in the bargain? What if we could take two wrongs and make a right! Here's what I mean:

As you know, Attorney General Janet Reno recently advised Speaker Gingrich that Justice will not enforce the criminalization of Medicaid estate planning (i.e., the practice of artificially impoverishing frail or infirm elderly people to qualify them for Medicaid nursing home benefits.) A New York court has enjoined enforcement of the law as well. Consequently, a green light is flashing nationwide in favor of Medicaid estate planning and a red light is flashing against private long-term care insurance. Why buy insurance when you can ignore the risk, wait to see if the insurable event occurs, and shift the cost to taxpayers and nursing home owners if necessary?

The well-known problems of too much Medicaid planning and too little private long-term care insurance are inextricably intertwined. We can and must kill both birds with one stone. By
decriminalizing Medicaid planning while simultaneously implementing a plan I call the "Magic
Bullet," we can generate more than enough new, non-tax revenue to fund the entire cost of tax deductibility. In 1995, the Heritage Foundation estimated the potential annual savings from this
program to be $5 billion. It is equally attractive to Democrats (as a matter of fairness) and to
Republicans (as a matter of fiscal responsibility). All the Magic Bullet really needs is a prominent, credible, and well-respected legislative advocate to carry it forward.

Congresswoman Johnson, I have taken the liberty to send you herewith "The Magic Bullet" study that documents these claims and additional corroborative evidence. The Magic Bullet is only the financing portion of a broader plan we have published called "LTC Choice" which will solve the long-term care financing problem once and for all. A copy of that paper is also enclosed. If you find merit in this approach, we at the Center for Long-Term Care Financing would be pleased to help you explore and develop it further.


Stephen A. Moses

CC 1600 subscribers to "LTC Bullets," the Center for Long-Term Care Financing's on-line