Opinion President Bush’s Long-term Care Plan: Will It Be Enough?

Now that the elections are behind us, voters will want to know how their choice may impact the lives of their parents, grandparents and even themselves if and when they need long-term care (LTC).

President Bush has proposed in his current budget expanding the federal tax deduction for long-term care insurance. The current deduction, which went into effect Jan. 1, 1997, applies only to business owners and a small percentage of individuals. Now, in order for an individual who is not a business owner to take a deduction for long-term care insurance, he or she must itemize their federal tax return, and have medical expenses yet to be reimbursed and eligible long-term care insurance premiums that exceed 7.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of adjusted gross income.

The proposed budget allows an above-the-line deduction, which will greatly encourage individuals to purchase long-term care insurance.

President Bush has historically been an advocate of reforming Medicaid in a radical way – by encouraging states to accept a block of federal money for the ability to define and administer their own Medicaid program. This approach is referred to as “block grants.”

Presently, Medicaid is administered federally by the Centers for Medicare and Medicaid (formerly HCFA), and is a joint venture between the federal government and each state’s own Medicaid department. Every state is required to comply with federal guidelines in providing Medicaid care for the poor in their own state. To deviate from the federal guidelines, a state must apply for permission from CMS – through a process called a waiver.

Block grants, if enacted, will result in widespread confusion among citizens, as Medicaid benefits will likely be wildly different, depending on the state where one resides. States will have the option of providing rich Medicaid benefits, or worse benefits than currently exist. It’s hard to comprehend the impact on care-giving facilities, such as nursing homes. They are already in a very fiscally precarious situation under the current Medicaid program.

Long-term care is a topic most voters don’t think about until they are faced with a crisis. Then they find out that, for the middle-class and upper-middle class that there is no help and few affordable options. For people needing extended professional long-term care, failing to plan ahead will result in either eventually exhausting their life savings then ending up on Medicaid (Welfare) or doing Medicaid planning by hiding money and shifting the financial burden to their taxpayer neighbors.

Either way the current system fails us.

What is needed to fix this country’s broken long-term health care system? A combination of meaningful tax incentives encouraging citizens to purchase private LTC insurance combined with sweeping reform of the Medicaid system — the kind of reform that lets middle class seniors leave a modest inheritance to their kids – shuts down the ability to hide hundreds of thousands of dollars overnight, and preserves high-quality long-term care for the truly needy.

It is good fiscal policy.

One thing’s for certain, 10,000 baby boomers will soon turn 65 every year for the next 20 years, so something needs to be done now. Over the past few years, Congress has proposed several bipartisan bills that would allow greater tax deductions for long-term care insurance. Let your congressman know it’s important to you.

Jeff Reilly, LUTCF, has been an expert in long-term care planning since 1989. He is a national trainer, frequent lecturer, and works closely with elder care attorneys, accountants, and financial planners; (413) 526-8989.