Letter to Chairwoman Nancy Johnson and Representataive Earl Pomeroy regarding support for the Long-Term Care and Retirement Security Act of 2003

May 23, 2003

Re: Support for the Long-Term Care and Retirement Security Act of 2003

Dear Chairwoman Johnson and Representative Pomeroy:

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 2003," (H.R. 2096) introduced by Representatives Nancy Johnson and Earl Pomeroy 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. In the 107th Congress, Senators Charles Grassley and Bob Graham introduced companion legislation to the Long-Term Care and Retirement Security Act of 2002. We anticipate they will introduce a companion bill to H.R. 2096 in the near future. The long-term care policies subject to the deduction are covered by strong consumer protections. The legislation also would permit long-term care insurance policies to be offered under employer-sponsored cafeteria plans and flexible spending accounts.

Together, these initiatives will begin to 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 13 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 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 a very small 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 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.

Sincerely,

cc: Members of the House of Representatives