Posted on: Friday, March 28, 2003

Senate commitee OKs long-term-care tax plan

By Lynda Arakawa and Robbie Dingeman
Advertiser Staff Writers

Hawai'i residents would be taxed $120 a year to finance a state long-term-care program, but would receive a tax credit if they buy their own private insurance, under a bill approved by a key Senate committee yesterday.

The action continues the Legislature's two-pronged approach to helping the elderly: create a state fund for people who can't afford long-term-care insurance, while offering an incentive to those who can.

Both strategies are rolled into House Bill 1616. The Senate Ways and Means Committee yesterday approved the Senate's draft of that bill and sent it to a vote by the full Senate.

House Bill 1616 calls for a tax credit of $120 a year.

Gov. Linda Lingle opposes the tax proposal but supports tax credits for long-term-care insurance.

Lawmakers have been grappling for years over how to make long-term-care resources more affordable and accessible to people in a state that now boasts the longest life expectancy in the country. The bill approved by the committee yesterday is one of a handful of long-term-care proposals still moving in the Legislature.

The state Executive Office on Aging estimates that only 6 percent of Hawai'i residents have long-term-care insurance.

Lawmakers last year would not pass the payroll tax, although they acknowledged the growing need as a large segment of the population pushes toward retirement age and becomes likely to need such care.

By 2020, one in four Hawai'i residents will be age 60 or older. And that looming group has pushed this issue to the forefront in a tight budget year.

Hawai'i's costs for long-term-care insurance rise above that of many states, although the estimate varies. Nationwide, patients pay an average of $168 per day for a private room in a nursing home, according to a 2002 study by the MetLife Mature Market Institute. That same survey placed Honolulu's rate at $220 each day, putting it in the top tier of metropolitan areas, led by Anchorage, Alaska, at $331.

Other rates related to long-term care are also high, the survey said, with Honolulu's $19 hourly average cost for home healthcare aides just above the $18 national average.

The House is considering a similar bill that combines the long-term-care tax program with tax credits, as well as a measure that would establish a tax credit equal to 50 percent of long-term-care insurance premiums or $2,500, whichever is less. Those measures are sitting in the House Finance Committee.

House Bill 1616 would establish a long-term-care income tax of $120 a year, which would increase to $276 a year by the end of 2011. Those who pay the tax for 10 years would be eligible for the full $70-a-day cash benefit for up to one year. The cash benefit would grow to $83.58 per day in 2013.

The bill would also establish a tax credit of up to $120 a year for five years, and a credit of up to $180 a year for the following five years for people who pay the tax and purchase a long-term-care insurance policy.

"It seemed to make sense to have the measure that would set the program up and then tie the credit to the fact that if people had a long-term-care policy already then they could get a credit for the amount of this particular program," said Senate Health Committee Chairwoman Roz Baker, D-5th (W. Maui, S. Maui). "We think that it would also give people an additional coverage because this measure, while we believe it will address 75 percent of the needs of seniors, it does not pay for nursing home care."

The measure passed the Senate Ways and Means Committee by an 11-2 vote, with Sens. Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai'i Kai), and Sam Slom, R-8th (Kahala, Hawai'i Kai), voting against it.

Hemmings criticized combining the tax program with the tax credit, calling it holding "a good issue hostage to keep a bad initiative alive." He said the tax-credit proposal should be enhanced so there would be no need for a state long-term-care financing program, which he said would give seniors and others false hope that they are fully covered.

But even some insurance agents who sell such long-term-care policies say they see the value in both proposals. John Wesley Nakao, long-term-care specialist for John Hancock, said the two plans can both work. The tax credit will provide an incentive for middle-class folks to buy coverage while the tax can create a state plan to cover people without the resources, he said.

"Some coverage is better than no coverage," Nakao said. He said both kinds of plans can help people to live in their own house longer because the proposals cover various kinds of assistance with chores, meals and bathing.

Because most people want to stay at home, Nakao said he ends up selling the policies to people who see that it could give them flexibility of choices. "It's anti-nursing home insurance," he said.

On average, and depending on their age, health and type of plan, Nakao's clients pay $75 to $400 a month. "We recommend this coverage for people who have at least $50,000 in assets other than their home and car to protect," he said.

Nakao said some people are reluctant to buy long-term-care insurance until they see someone whose finances were devastated by the sudden need for expensive care.