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LTCI Watch: Breaking Into the FSA

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Some members of Congress want to deal with the death of the Community Living Assistance Services and Supports (CLASS) Act by bring up another long-term care (LTC) benefits idea: Letting workers use their flexible spending accounts (FSAs) to buy long-term care insurance (LTCI).

If employees could buy LTCI through FSAs and cafteria plans, they could pay for the coverage with pre-tax income.

Rep. Charles Boustany, R-La., the sponsor of a bill that would officially repeal the CLASS Act and kill off the CLASS program, may have persuaded Rep. Richard Neal, D-Mass., to support a new bill letting LTCI into FSAs, according to The Hill.

Neal has been supporting to FSA LTCI bills for years. In the last Congress, for example, he supported H.R. 3363, an FSA LTCI bill introduced by Rep. Earl Pomeroy, D.-N.D.

Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), Westlake Village, Calif., says he is happy to see someone in Washington trying to do something rather than focusing on empty rhetoric.

“Allowing LTC insurance to be included as part of FSAs would likely bring a few more insurers back into the group LTC insurance business and certainly would increase the number of insureds,” Slome says.

The voluntary LTCI program for federal employees attracted 45,000 enrollees this year, Slome says.

One hitch is that Democrats may not want to do Republicans any favors.

Another hitch is that insurers themselves may not be in a position to provide as much support for an FSA LTCI bill as they have in the past, given the smaller number of insurers in the LTCI market.

A third hitch is that Democrats, and some Republicans, are skeptical about the concept of using tax deductions and tax credits to encourage consumers to buy specific types of products.

The tax breaks reduce federal tax revenue, often go to taxpayers with high incomes, and, in some cases, generate administrative costs that are comparable to, or higher than, the amount of benefits provided, critics say.

Martin Feldstein, a well-known economist, may have given the idea of making room for tax breaks that encourage taxpayers to save for post-retirement expenses a little intellectual oomph in September, when he suggested at a hearing organized by the Senate Finance Committee that Congress should root out many types of “tax expenditures” but keep tax breaks that encourage saving and investment.

In the mid-1990s, analysts tried to come up with studies showing how LTCI tax breaks would do at generating Medicaid nursing home benefits program savings in later years.

My feeling is that supporting anything that encourages long-term thinking about anything is worth considering in this day of 15-second attention spans. It’s hard to know whether any product, company, currency or country will last or prosper at a time when Greece looks shaky. If an entire European country can enter some kind of national state of bankruptcy, who knows if anything can survive. Maybe only the earth abides. But, it just seems as if there’s something good about having a lot of people around who are thinking about the future when they are buying, selling and creating products. Even if the products don’t perform exactly as we expect, maybe the talking and thinking will help us figure out how to cope.


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