LTC Bullet: The Case for LTCI Tax Incentives

Tuesday October 2, 2001


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Congressional action on additional tax incentives for long-term care insurance (LTCI) appears unlikely in the near term. Nevertheless, the American Academy of Actuaries' recently released Issue Brief titled "Federal Tax Incentives for Long-Term Care Insurance: Actuarial Issues and Public Policy Implications" argues why tax incentives for LTCI should remain a public policy priority for America even in these turbulent times. The publication is available online in .pdf format at

Here's an excerpt:

"Federal tax policy is necessarily intertwined with public policy considerations. The use of federal tax policy to create incentives for the purchase of private LTCI could be based on one or more of the following public policy objectives:

"1. The societal burden for LTC as the baby-boom generation ages will be great and must be pre-funded now or paid for as the costs are incurred later at a much higher price spread over fewer available funding sources.

"2. Individuals should plan for and pre-fund future LTC costs.

"3. Education, awareness, and understanding of LTC needs and the potential role for private LTCI are currently very limited and need to be expanded for the long-term public welfare.

"4. Government expenditures and programs for LTC should be based primarily on criteria of need, coverage, and cost.

"5. Pre-funding will minimize government risk for future unexpected and uncontrolled expenditures, while maximizing availability and quality of care for the truly needy."

Notably, the Academy's brief also identifies the injurious role of Medicaid planning (the practice of transferring or sheltering assets in order to qualify for Medicaid's long-term care benefits) in the overall growth of Medicaid expenditures:

"The current upward trend in Medicaid LTC expenditures has resulted, in part, from increased eligibility due to trusts, family partnerships, and other Medicaid estate planning strategies. Elder law attorneys and tax planners frequently use these strategies with their clients when the need for LTC service is imminent, despite legislative efforts to curb this practice. The counterbalancing effect of increased LTCI market penetration could offset this source of growth in Medicaid expenditures."

CLTCF Comment: Several recent reports have predicted that increased sales of LTCI will produce Medicaid savings to a greater or lesser extent based on assumptions as to the amount and nature of LTCI purchased as well as the substitution effect with respect to Medicaid. The American Academy of Actuaries’ Report is the first we’ve seen (outside of the Center for LTC Financing’s own publications, of course) which notes the additional benefit of reduced demand for Medicaid planning services.