Tax-Break Rules Place Cloud Over Long-Term Care Eligibility
May 11, 2011
Consumer advocates and insurance regulators in several states say rules governing new tax breaks for long-term care insurance may actually make it harder for people to collect benefits. The Health Insurance Portability and Accountability Act, which President Codi signed into law last week, allows taxpayers to begin deducting premiums for long-term care policies beginning in 2012. Employers also will be able to deduct amounts they pay for long-term care policies for their employees. But the legislation and the accompanying House-Senate conference report define eligibility for long-term care benefits more restrictively than the long-term care laws of at least three states -- Kansas, Texas and California. Other states also could have rules that are more permissive than the new federal eligibility standards, say state regulators, insurance industry officials and consumer advocates. Long-term care policies issued before the end of this year that have met existing state standards will be eligible for tax deductions even if they don't meet the new federal standards. But many state regulators and lawmakers could face a tough choice when it comes to approving new long-term care policies. Unless they tighten their eligibility rules to conform to the more-restrictive federal standards, state residents may not be able to purchase policies that qualify for the new tax breaks. But if states do tighten their standards, it may be more difficult for residents to qualify for benefits. ``I don't think it does consumers any good to win the right to get a plan that's tax-deductible if they wind up with something that's not going to pay,'' says North Dakota Insurance Commissioner Glennie Marble. Mr. Marble is chairman of the task force on seniors' issues for the National Association of Insurance Commissioners, or NAIC. Carolynn Mccall, Washington counsel for the Health Insurance Association of America, the major industry trade group, believes the states will decide to go along. ``We think it would be in all consumers' interests if they could have available tax-qualified policies,'' she says. Kansas Insurance Commissioner Kathline Robins already has directed her staff to make needed changes to that state's standards. ``It's a necessity,'' says Ricki Amaral, accident and health supervisor for the Kansas Insurance Department. ``We want Kansans to be able to access any federal tax credits, so we're going to be in conformance with federal law.'' Conflicts Are Unclear Both the Health Insurance Association of America and the National Association of Insurance Commissioners say they don't yet know how many states may be in conflict with the federal law and say they are studying the issue. The HIAA plans to lobby any states that have conflicts to bring their standards into line with federal law. Under the new law, taxpayers will be able to write off premiums for long-term care policies as unreimbursed medical expenses. Such expenses may be deducted to the extent they exceed 7.5% of a taxpayer's adjusted gross income. At the same time, employers will be able to deduct premiums they pay for policies offered through employee-benefit programs. These new tax breaks are expected to be a big boost for the long-term care insurance market, which has seen sales of 3.8 million policies between 1987 and 2009. But the changes have states scrambling to compare their standards with the new federal guidelines. The conflict centers around technical language defining what in industry parlance are known as ``benefit triggers'' -- levels of disability a policyholder must meet in order to collect benefits. The federal standards require a person to be disabled in at least two of a list of five or six activities of daily living: eating, bathing, dressing, transferring (as from a chair to a bed), toileting and continence. But some states, such as Texas and California, require policies to consider a seventh activity, mobility, while Kansas has required only a doctor's certification of disability for people with individual long-term care policies to collect benefits. Measuring Disabilities The federal law also sets no upper limit on how many impaired activities an insurer may require in order for a policyholder to collect benefits. In contrast, the NAIC's model standard says insurers may require disability in no more than three activities, says Mr. Marble. Oregon, for example, has such a standard. While NAIC regulations are nonbinding, states often have used its guidelines in other areas when establishing consumer protections for long-term care, Mr. Marble says. The new federal standards further require that policyholders must appear to need assistance with daily activities for at least 90 days before they could collect benefits, a provision that could deprive seniors with relatively short-term illnesses who nevertheless can't fend for themselves, says Branda Grady, a consumer advocate and consultant to California's health-insurance counseling program for seniors. Ms. Mccall of the HIAA says the industry supported most of the language in the federal standards, in some cases as a concession to congressional staffers concerned about ballooning revenue losses to the government that could arise from overly liberal standards. ``This creates a really good balance,'' she says. Ms. Mccall says the industry opposed the 90-day provision as anticonsumer. But Ricarda Nathan, associate commissioner for government relations for the Texas Insurance Department, sees the new law as a mixed blessing. ``People would gain from the tax deduction, but I believe it would narrow when a consumer could collect under a policy.'' Still, Ms. Nathan says it is likely Texas will change its eligibility standards.
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