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Senate LTC Bill Provides Above-The-Line Deduction

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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.

With the cost of a private room in a nursing home averaging approximately $75,000 annually, “It is vital that Congress do everything it can to ensure that individuals will have access to affordable care during their golden years,” she said.

The legislation also requires new consumer protections that are consistent with the most recent National Association of Insurance Commissioners’ Long Term Care Insurance Model Act and regulation.

Grassley, ranking minority member of the Senate Finance Committee, said, “As we deal with the realities of an aging America and rising costs of healthcare, it’s vital that we give workers a new option in planning for retirement security by making long term care insurance policies more affordable for people of all ages.”

The added consumer security provisions to these policies “will help make sure we weed out the bad apple agents,” he said.

ACLI’s Keating contended the legislation would provide significant public policy benefits as well. He explained that Medicaid dollars account for 45% of nursing home payments and the total annual cost is expected to reach $118 billion by 2030.

“If three-quarters of individuals between the ages of 40 and 65 who can afford long term care insurance were to purchase and maintain policies throughout their senior years, by 2030 the annual savings in Medicaid nursing home and out-of-pocket expenses would total $36.6 billion,” he said.

“Millions of Americans have used cafeteria plans and FSAs to help protect their families and provide important financial protection. Including long-term care insurance will add an important piece to Americans’ financial security puzzle,” Keating said.

The “high and rising cost of long term care represents a looming threat to Americans’ financial and retirement security,” said Keating. He cited statistics showing that the average cost for a one-year stay in a nursing home is $75,000.

By 2030, that cost is estimated to rise to nearly $140,000, Keating said, “well out of range of what most Americans could possibly save to pay for these services. Long term care insurance can cover the costs of long term care services and protect hard-earned savings.”

He also noted the pending retirement of 78 million baby boomers means more Americans will run the risk of depleting their savings to pay for LTC services.


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