California Insurance Industry Cool To LTC Savings Accounts
California lawmakers almost created a task force that would have studied long-term care savings accounts.
Gov. Gray Davis, a Democrat, vetoed the bill, A.B. 1451, arguing the state could save $133,000 by letting an existing Long-Term Care Council conduct the study.
But the council is still looking at the LTC savings account idea, and the concept has come up repeatedly in other states. Michigan lawmakers began considering LTC savings account proposals in 1999, and an Illinois lawmaker introduced an LTC savings account bill in her state in February.
Calif. Assembly Member Carol Liu, D-La Canada Flintridge, Calif., says an LTC savings program seemed to be an obvious option to include in her LTC task force bill.
“That idea came from brainstorming among the staff,” Liu says.
The government now allows taxpayers to deduct LTC premiums from taxable income only if they itemize deductions and spend at least 7.5% of gross income on medical expenses. In practice, few taxpayers can take the LTC deduction, according to the Health Insurance Association of America, Washington.
The government has offered tax breaks for years on contributions to Individual Retirement Accounts and 401(k) retirement plans.
The government authorized an above-the-line deduction for contributions to major medical Medical Savings Accounts in 1997. But the MSAs eligible for the tax breaks are part of a pilot program open only to one-person companies and uninsured companies with fewer than 50 workers.
MSA members can already buy LTC coverage with pre-tax income by paying the premiums through the MSAs, HIAA says.
Although the insurance industry has supported the MSA pilot program and lobbied for LTC insurance tax credits, three industry groupsthe Association of California Life and Health Insurance Companies, the California Association of Health Plans and the California Association of Health Underwriterstook a neutral position or no position on A.B. 1451.
The lack of industry support for A.B. 1451 was due in part to the original language: as introduced, the bill would have required any insurer selling LTC insurance in California on a guaranteed renewable basis to offer at least one noncancelable plan.
Steven Lindsay, a CAHU lobbyist, says some agents and others in the industry also object to setting up a new mechanism to finance long-term careespecially if the mechanism might not encourage or allow consumers to use insurance to spread risk.
An LTC savings account program could be designed so that assets would be used to pay directly for long-term care, rather than LTC insurance, Lindsay says.
Even if an LTC savings program encouraged use of assets to purchase LTC insurance, adding an LTC tax credit to the existing IRA program would probably be a better idea, Lindsay says.
“It would be simpler,” Lindsay says. “Then you still have one set of rules.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.