A member of the House Ways and Means Committee introduced legislation Aug. 3 that would allow long term care insurance to be treated as a tax-exempt employee benefit.

The “Long Term Care Affordability and Security Act of 2007,” H.R. 3363, proposed by Rep. Earl Pomeroy, D.-N.D., would end restrictions that exclude LTC insurance from cafeteria plans or flexible spending arrangements.

Cafeteria plans, as outlined in section 125 of the Internal Revenue Code, allow employees to pay for voluntary benefits such as health care insurance by reducing their salaries by the premium amounts, in effect allowing them to pay for these benefits pre-tax, reducing taxable income.

FSAs permit employees to set aside specified amounts to cover eligible out-of-pocket expenses for health care, dental care and dependent day care. These expenditures are also deducted from an employee’s pay on a pre-tax basis.

The American Council of Life Insurers, has pushed for the legislation, maintaining that allowing tax-exempt treatment under employer benefit plans would substantially increase LTC insurance sales.

ACLI estimates Pomeroy’s proposed legislation would cost as little as $500 million in lost tax revenues. This would be followed by Medicaid savings in later years as more people purchased LTC insurance, thus easing the demand for Medicaid-paid LTC services, according to the ACLI.

“One of the greatest threats to Americans’ retirement security is the cost of long term care,” said Frank Keating, ACLI president and CEO. “Most Americans cannot possibly save enough to pay for these services. Long term care insurance can cover the costs of long term care services and protect hard-earned savings.”

With the demand and cost of LTC rising, allowing LTC insurance to be offered on a tax-qualified basis in employer benefit plans would enable more Americans to prepare for a secure retirement, Keating said.

The bill, which was referred to the Ways and Means Committee, has 24 co-sponsors from both sides of the aisle, including Rep. Jim Ramstad, R-Minn., Rep. Allyson Schwartz, D- Pa., and Rep. Kenny C. Hulshof, R-Mo.