Five U.S. senators have joined to sponsor bipartisan legislation that would provide an above-the-line deduction for long term care insurance premiums through cafeteria plans.
Introduction of the legislation, The Long-Term Care Affordability and Security Act of 2007, S. 2337, was lauded by the American Council of Life Insurers, which said “it makes sense for Americans’ retirement security and our nation’s public policy.”
Frank Keating, president and CEO of the ACLI, added, “We urge Congress to pass this important legislation.”
The bill was introduced on Nov. 13 in the Senate by Sens. Chuck Grassley, R-Iowa; Blanche Lincoln, D-Ark.; Olympia Snowe, R-Maine; Debbie Stabenow, D-Mich.; and Gordon Smith, R-Ore.
Companion legislation, The Long-Term Care Affordability and Security Act, H.R. 3363, was introduced in the House on Aug. 3, by Reps. Earl Pomeroy, D-N.D.; Jim Ramstad, R-Minn.; Allyson Schwartz, D-Pa.; and Kenny Hulshof, R-Mo.
The bill would permit long term care insurance to be included in employer-sponsored cafeteria plans and flexible spending accounts, enabling people to pay LTC insurance premiums using pre-tax dollars. It would do so by amending current law, which explicitly states employees are prohibited from paying for the cost of long term care insurance tax-free.
Cafeteria plans allow employees to pay for benefits such as life insurance, disability insurance and other voluntary benefits by reducing their pay, pre-tax, by the premium amount.
In FSA plans, employees set aside predetermined amounts in an account to cover eligible out-of-pocket expenses most often related to health, dental and dependent day care. Dollars are deducted from an employee’s payroll on a pre-tax basis. As needed, the employee receives reimbursement from the account, also tax-free, for eligible expenses during the year.
The life insurance industry lobbied heavily for allowing LTC premiums to be part of cafeteria plans in the Pension Protection Act of 2006, but the provision was left out of the final bill for budget reasons.
In her comments about the legislation, Snowe made that point. “I strongly believe the legislation we are introducing, which would allow cafeteria plans and flexible spending arrangements to offer long term care insurance as a qualified benefit, will make long term care much more affordable and widespread by allowing it to be purchased with tax-free dollars.
“Statistics show that nearly half of all seniors age 65 or older will need some form of long term care at some point in their life, but just 10% of seniors have taken out a long term care insurance policy and only 7% percent of all private-industry employees are offered long term care insurance as a voluntary benefit,” Snowe said.