LTC Bullet: Growing Support for LTCI Tax Breaks

Wednesday July 25, 2001


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The letter below to United States Senators Grassley (R-IA) and Graham (D-FL) from many organizations across the political spectrum evidences growing support for encouraging the purchase of private long-term care insurance with tax-based incentives. These incentives are part of the "Long-Term Care and Retirement Security Act of 2001" which was introduced earlier this year in both the House (H.R. 831) and Senate (S. 627) and has been referred to committee. This legislation, which can be viewed at, also proposes a phased-in tax credit for eligible caregivers.

The Center for Long-Term Care Financing supports all efforts to encourage Americans to plan ahead for the risk of expensive long-term care. We believe savings, investment, and private insurance can assure quality long-term care for most seniors and help save the Medicaid program for those less fortunate people the program is intended to serve. The Center does not endorse specific legislation--passed, pending, or otherwise. We do, however, encourage lawmakers to use rational and responsible public policy as a tool to empower Americans to assure for themselves access to quality long-term care at the most appropriate level. Tax incentives for the purchase of long-term care insurance are one such tool.

It is worth noting the make-up of the organizations supporting this compromise legislation. LTC industry groups support the bill because of the tax deductibility provision. Senior advocacy groups support the bill for its tax credit provision. Ironically, the two provisions may balance each other leaving neither set of advocates very far ahead in the long run. For example, if a major reason why most people fail to purchase long-term care insurance is their belief (mistaken or otherwise) that government pays for long-term care, will the availability of a $3,000 tax credit for current caregivers reduce the public's incentive to purchase LTC insurance more than the tax deductibility provision motivates them to buy? Does the government once again have one foot on the accelerator and the other on the brake? Time will tell, but the saga of long-term care financing policy is still fascinating to watch.

Here’s the letter in support of the Long-Term Care and Retirement Security Act of 2001. The same letter was sent to Representatives Johnson (R-CT) and Thurman (D-FL), co-sponsors of H.R. 831.

July 19, 2001

Dear Senators Grassley and Graham:

The undersigned organizations are writing to express our strong support for bicameral bipartisan legislation that will provide some help to millions of Americans who need long-term care services. The "Long-Term Care and Retirement Security Act of 2001," introduced by Representatives Nancy Johnson and Karen Thurman (H.R. 831) and by Senators Charles Grassley and Bob Graham (S. 627), provides a $3,000 tax credit to individuals with long-term care needs or their caregivers, and an above-the line federal income tax deduction for the premiums individuals pay to purchase long-term care insurance. The long-term care policies subject to the deduction are covered by broad consumer protections. The bills also would permit long-term care insurance policies to be offered under employer-sponsored cafeteria plans and flexible spending accounts.

Together, these initiatives will provide help to millions of Americans who need long-term care services now and in the future. We urge Congress to pass this long-term care package this year. 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, roughly 40 percent of long-term care in this country is paid for by individuals needing care, their families, the insurance they purchase, or through other private sources. The average annual cost of a one-year nursing home stay is $55,000. 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 are family members – typically wives and daughters. To help individuals or their family members pay for long-term care services, this legislation provides 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 1966 (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, the legislation provides 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. The legislation updates the HIPAA consumer protection standards to reflect most of the National Association of Insurance Commissioners’ (NAIC) model act and regulations on long-term care as amended in September 2000.

Clearly, we cannot solve the entire long-term care crisis facing America’s families this year. While our organizations may not agree on a common agenda to do that, the organizations listed below do agree on the steps incorporated in this legislation. We encourage the Congress and the Administration to take the opportunity to enact the Long-Term Care and Retirement Security Act this year.



American Agri-Women

American Association of Retired Persons

American Council of Life Insurers

Assisted Living Federation of America

General Federation of Women’s Clubs

Health Insurance Association of America

National Academy of Elder Law Attorneys

National Association of Insurance & Financial Advisors

National Association of Nutrition and Aging Services Programs

National Committee to Preserve Social Security and Medicare

National Council on the Aging

National Family Caregivers Association

National Hispanic Council on the Aging

National Silver Haired Congress

United Seniors Health Council

Women’s Institute for a Secure Retirement