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Life Health > Life Insurance > Term Insurance

Witnesses Question Value Of LTC Tax Incentives

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Many long term care finance experts still doubt whether private insurers can do much to reduce the state and federal government LTC funding burden.[@@]

Several speakers delivered variations of that argument here today at a hearing on long term care organized by Rep. Nancy Johnson, R-Conn., chairman of the House Ways and Means Committee health subcommittee.

The American Council of Life Insurers, Washington, put out a statement praising Johnson for holding the hearing and for her continuing support for efforts to establish an “above the line” tax deduction for LTC insurance premiums.

“We need innovative thinking to address our nation’s emerging long-term care crisis,” ACLI President Frank Keating says in the statement. “Life insurers congratulate Rep. Johnson and her subcommittee for giving this issue the attention it deserves.”

Some hearing witnesses, such as Buck Stinson, an executive in the LTC division at Genworth Financial Inc., Richmond, Va., talked about why expanding tax breaks for private LTC insurance could encourage a higher percentage of high-income and moderate-income U.S. residents to take care of their own LTC needs, helping government health programs focus on meeting the needs of low-income LTC patients.

But other witnesses presented testimony that suggests insurers may continue to face significant resistance to expansion of LTC insurance tax breaks.

Douglas Holtz-Eakin, director of the Congressional Budget Office, noted that private LTC insurance now covers only about 3% of LTC spending. CBO projections show private insurance could account for about 17% of LTC spending in 2020, but, at that rate, private insurers would continue to be paying a smaller share of patients’ LTC bills than Medicaid or Medicare, Holtz-Eakin said, according to a written version of his testimony posted on the Ways and Means Committee Web site.

Some factors that probably will limit the role of private insurance in LTC funding include administrative costs, the instability of premiums and adverse selection, Holtz-Eakin said.

Dr. Meghan Gerety, a geriatrics professor at the University of Texas Health Science Center at San Antonio, said she does not believe that private LTC insurance is now a viable option for many Americans.

“Tax incentives for private long term care insurance primarily benefit the higher income [consumer],” Gerety said. “Additionally, premiums are often unpredictable over the long term. Long term care insurance premiums often increase dramatically as individuals age, meaning that people drop their policies just when they need them most. In fact, as a baby boomer and a geriatrician, I have neglected to purchase a long term care policy because it is of limited value.”

Another speaker, Judy Feder, a long term care researcher at the Georgetown Public Policy Institute, predicted that private insurance will play a growing role in LTC financing.

“However, even with improved standards and special ‘partnerships’ with Medicaid, it does nothing for those currently in need, is not promoted as a means to serve the under-65 population and, in the future will be affordable and valuable for only a portion of the older population–most likely, the better off,” Feder said.

Feder argued that some strategies for holding down the cost of LTC insurance, such as limiting benefits in dollar terms, leave policyholders with insufficient protection when they most need care, while some strategies for improving the quality of LTC insurance, such as creating standardized policies, may increase the cost of LTC insurance and put it even further beyond the reach of older U.S. residents of modest means.

Feder criticized the idea of enacting new tax preferences to spur sales of private LTC insurance.

“Such credits are likely to primarily benefit those who would have purchased long term care insurance even in the absence of credits,” Feder said.

A better strategy would be to use estate taxes and other federal resources to improve Medicaid LTC financing, Feder argued.

The House Ways and Means Committee has posted the written versions of the witnesses’ testimony on the Web at


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