AARP, insurers back long-term-care break

Legislation allowing people to deduct the cost of long-term-care insurance from their taxable income is making strange bedfellows in Washington.

The bill is drawing support from the insurance industry as well as the AARP, the association for people over 50. The two groups don’t normally see eye to eye.

But financial planners, who are selling more of the policies to aging baby boomers, don’t unanimously support the bill, and some dispute claims by the insurance industry that it will result in more policy sales.

President Bush included provisions in his budget for allowing people to deduct the cost of long-term-care policies whether or not they itemize deductions, but it is not in his tax cut package.

Currently, the cost of long-term-care policies can be deducted only by taxpayers who itemize deductions and who incur medical costs that total more than 7.5% of adjusted gross income.

Allowing all taxpayers to deduct policy costs would result in losses of $16 billion in tax revenues over a decade, and another component of the bill – giving $3,000 annual tax credits for caregivers and people who use long-term care – would cost another $30 billion.

The insurance industry argues that the deductions would encourage people to buy their own protection, which would in the long run save the government an enormous amount of money. Medicaid, which covers long-term care for the poor, now spends about $30 billion a year on nursing home costs. By 2030, that cost is expected to rise to $134 billion a year.

call for incentives

“There is not enough money for long-term care to be a public solution,” says Angela Arnett, senior counsel for the American Council of Life Insurers in Washington. “We need to provide incentives for Americans to protect themselves.”

Rep. Nancy Johnson, R-Conn., a sponsor of the bill in the House, says the legislation “will make it easier for people to buy insurance, and it provides an incentive for people to market it.”

“The most important aspect of this legislation is that it will create movement in the long-term-care market and will lead to the development of new policies,” she adds. “I want to see a market for 20- to 30-year-olds. That would help keep the cost of the policies in check, she says, since “such a small portion of the population is ever going to need it.”

Ms. Johnson and Washington lobbyists pushing for the legislation, supported in the Senate by Finance Committee chairman Charles Grassley, R-Iowa, hope to attach it to any bill aimed at making health insurance affordable to low-income people.

Other vehicles for the legislation are bills to provide prescription drug benefits to Medicare recipients and to increase the minimum wage, and additional tax bills that may be introduced this year.

The number of co-sponsors in the House, which passed the measure last year, has jumped to 68 members over the last two weeks, from 38, signaling the increasing popularity of the bill.

The policies are becoming more popular with financial planners as tools to protect clients against having to spend their wealth to pay for long-term care.

There is “a growing awareness within the financial planning community of the need to include long-term-care insurance in any financial plan,” says Kenneth Grubb, president of New York Life Long-Term Care in Austin, Texas, a subsidiary of New York Life Insurance Co.

Mr. Grubb says there is a trend among financial planning businesses to partner with insurance carriers to offer the product.

Norma Mannix, a certified financial planner who consults as a benefits manager in the San Francisco area, also says there is a trend among employers to offer employees self-paid plans.

“As a planner, I believe in it and recommend it,” she says. “As the [baby] boomers continue to age, we’re going to have more people asking about it as they realize how much of their money they can lose if they don’t have a policy. It really absorbs everything.”

Long-term-care premiums grew 11% in 1999 compared with the year before, to nearly $4 billion, according to the ACLI. Of the 3.4 million policies sold, 72% were to individuals and the rest group policies.

But Chris Cooper, president of Chris Cooper & Co. and Elder Care Advocates, planning companies in Toledo, Ohio, that supervise $187 million, does not believe the bill would lead to greater policy sales. Mr. Cooper manages the money and care of older adults.

“I think it’s useless,” Mr. Cooper says of the legislation. With Medicaid currently covering about 70% of long-term-care costs, “people think, `I don’t have to plan for this.’ Probably only about 10% of people will actually even have this problem.”

More than half of Mr. Cooper’s clients who have applied for the insurance cannot get it, he says. “It makes me wonder whether this is good social policy, whether we ought to be encouraging people to buy insurance if they don’t take everyone.”

Randolph Shine, co-owner of Shine Financial Inc., a Deerfield, Fla., planning business that supervises $5 million, says that “the tax deductibility of the premiums has not been a major issue in people purchasing long-term care. I can’t see the tax deductibility of the premium driving the product, but it’s good to have.”

Elizabeth Georgakopoulos, president of Conseco Health, a division of Conseco Services LLC in Carmel, Ind., says, “Advisers have not really embraced the product the way they need to.”

brokers not central

While awareness of the importance of the insurance has been rising among some brokerage firms, “it’s the minority, not the majority, of those folks,” Ms. Georgakopoulos says. The insurance is new and hard to understand, she notes.

“The companies that have embraced the financial planning market, like John Hancock, have adopted their administrative processes, taken the paperwork out and simplified the sales process” to make it more like a stock brokerage product, she says.

Dan Ouellette, vice president of long-term-care product management at John Hancock Financial Services Inc. in Boston, says passage of the legislation “will have the effect of raising awareness.”

He says that it would signal the federal government’s willingness to provide incentives for private solutions to the problem of long-term care. “It will make long-term care more affordable for the buyer,” he adds.

John Hancock currently takes in over $500 million in long-term-care premiums.

John Rother, director of legislation and public policy at the AARP, a Washington organization with more than 34 million members, is hoping that eventually the credit for caregivers will be made refundable so that those who pay no tax could get subsidies from the government.