LTC Donor-Only Bullet:  LTCI Tax Deductibility:  High Hopes Turn to Lowered Expectations

Tuesday  August 28, 2001


Last year, growing awareness of future long-term care costs, combined with bulging budget surpluses, led to high hopes that above-the-line tax deductibility for private LTC insurance would soon become a reality.  Didn't happen.  But all of us savvy prognosticators were saying "just wait for next year; the time is right." 

Oops!  Shows how much we know.  A funny thing happened on the way to economic utopia.  The dot-com bubble burst; the economy bombed; state and federal tax receipts collapsed; and Medicaid expenditures are skyrocketing 10 percent per annum for the first time since the early 90's. 

Suddenly, optimism is flagging for passage of the Long-Term Care and Retirement Security Act of 2001 (LTCRSA '01:  H.R. 831 and S. 627), sponsored by Nancy Johnson (R-CT) in the House and Charles Grassley (R-IA) in the Senate. 

The buzz is not good.  Well-known author and financial planner Suze Orman told an LTCI conference in Las Vegas that LTCRSA '01 was unlikely to pass this year.  Insiders say desirable, but expensive features added to the bill when times were good may have to go for the bill to have a fighting chance. 

When Congress and President Bush rushed through the tax act that dropped early refund checks in our mailboxes recently, everyone expected another tax bill to pass later in the year that would clean up a lot of loose ends…including above-the-line tax deductibility for LTCI.  Now that the budget surplus (except the excess lock-boxed for Social Security) has evaporated, however, such optimism has gone poof too.  

Unfortunately, the LTCRSA '01 bill is kind of expensive.  The LTCI tax deductibility portion only costs $18.5 billion over 10 years, most of which will ultimately be saved in reduced Medicaid expenditures, but the $3,000 tax credit for current caregivers--added to forge a strange-bedfellows alliance between the Health Insurance Association of America (HIAA) and AARP--is a dead loss of $29.7 billion over 10 years.  Experts fear the cost-effective tax deduction will now sink, dragged down by the far more expensive tax credit.

Without strong tax incentives to encourage baby boomers to plan early and insure fully for long-term care, many of that 77-million-strong mega-generation will fall onto Medicaid by default just as their parents and grandparents did.  That could be a devastating blow, even the coup d' grace, for America's welfare-financed, institution-based long-term care system. 

The only way to save Medicaid for the poor, and hopefully improve it, is to divert middle-class boomers to private financing alternatives for long-term care (including LTC insurance) now, while they are still young, healthy, and affluent enough to afford the cost.  Congress and President Bush are penny-wise, pound foolish if they miss this last, viable opportunity to act.

So, don't lose hope.  Political pundit Bill Kristol of The Weekly Standard told the Private LTC Insurance conference in Miami last week that tax deductibility could still pass if there is another tax bill for it to ride in on. 

Also, HIAA is launching "Americans Planning for Today and Tomorrow," a grassroots campaign designed to build stronger and broader support for LTCRSA '01.  The campaign focuses on grassroots consumer education and activation.  It's a fight worth waging, even if it's a losing battle this year. 

And, of course . . .  There is always next year.


Return to Donor Home