Better Alternative To A State Run Insurance Program

By Lowell L. Kalapa

(Released on 3/09/08)

Nearly two decades later and after two failed attempts at trying to force a state run long-term care insurance program down the throats of taxpayers, lawmakers seem willing to concede that the best strategy is to encourage individuals to purchase long-term care insurance.

As the legislature approached its critical midterm deadline to prepare bills to move from one house to the other, lawmakers pulled two measures introduced last year that would grant income tax credits to individuals who purchase long-term care insurance and to employers who purchase long-term care insurance for their employees.

The current draft of the bill for individuals purchasing long-term care insurance for themselves would limit eligibility for single taxpayers who have $50,000 or less of adjusted gross income while only couples with $100,000 or less of adjusted gross income could claim the credit. The amount of the credit would be limited to the lesser of $2,500 or 50% of any long-term care insurance premium paid. The income limitation would insure that only low and middle-income taxpayers would get the subsidy of the tax credit as they probably need it more than those in higher income brackets who probably can afford the premium for such insurance or have assets to pay for their long-term care when it is needed.

The other measure would grant employers a tax credit for the purchase of long-term care insurance for their employees as long as they are “small” businesses which are defined as having 100 employees or less. This measure makes the assumption that just because a business has less than 100 employees that it needs assistance or an incentive to purchase long-term care insurance for its employees. The number of employees is by no means an indication that a government subsidy through a tax credit is needed. And the subsidy could be substantial as the measure proposes the tax credit be equal to the lesser of 50% of the long-term care insurance premium or $500.

In this case, the tax revenue foregone might be better spent on educating employees about the importance of taking out a long-term care insurance policy. While there is a growing awareness of the need for such coverage as many find themselves having to care for elderly relatives, much of the reticence about long-term care insurance has been the components or features of a long-term car insurance policy. Many people don’t understand terms like “elimination period” or what an “ADL” is. Educating the public at large is critical in the effort to make sure that people provide for this type of care as they age.

Although there are offices at the state and county level established to address the issues of the elderly, they might also want to consider educating the general public about the potential challenges of not only caring for the elderly but also making provisions for long-term care of the next generation of elderly.

While encouraging people to purchase long-term care insurance by providing a subsidy such as the proposed tax credit, lawmakers must realize that if the resources are not available to provide that care it doesn’t make any difference how much coverage or money one has. Therefore, lawmakers must not only provide incentives and education for long-term care insurance, but they must also make sure that there are sufficient trained care providers and that there are facilities to provide long-term care now and in the future.

Like the trilemma that faces early childhood care and education, long-term care, at the other end of the spectrum, must also be affordable and accessible and be of high quality. Lawmakers must insure that there is curriculum in the community college and at the university to train providers and administrators of long-term care services. Similarly, lawmakers need to recognize the needs of the elderly and disabled as far as facilities and living arrangements. This means easing the permitting path for the development of facilities as well as perhaps modifying the building codes and occupancy restrictions for group homes.

Indeed, long-term care has become a more pronounced issue as Hawaii’s population ages. However, providing tax credits for the purchase of long-term care insurance is only one response to the problem. There are multiple facets to this issue with each requiring a different strategy. Addressing those issues now will save taxpayers many more dollars in the future as a greater portion of Hawaii’s population will need that care.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.