BILL ANALYSIS
AJR 8
Page 1
Date of Hearing: April 21, 2003
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Ed Chavez, Chair
AJR 8 (Mountjoy) - As Introduced: February 20, 2003
Majority vote.
SUBJECT : Federal Income Tax Deductions: Long-Term Insurance
Premiums
SUMMARY : Memorializes the United States (U.S.) Congress and the
President to review federal income tax laws applicable to the
deductibility of long-term care insurance premiums, and to enact
new tax benefits allowing individuals to deduct the total cost
of any premiums paid for a qualifying long-term care insurance
policy or contract. Further encourages Congress and the
President to provide for full deductibility of long-term care
insurance premiums, regardless of the income of the taxpayer
paying the premium, the total annual amount paid by the taxpayer
for medical expenses, or the age of the covered individual.
EXISTING FEDERAL AND STATE LAW :
1)Allow taxpayers who itemize a deduction for unreimbursed
medical expenses that exceed 7.5% of their adjusted gross
incomes. Unreimbursed long-term care insurance premiums are
included in the definition of medical expenses eligible for
the deduction but are capped based on the age of the taxpayer,
as follows:
Age of Taxpayer Maximum Deduction
40 or less $ 200
41-50 $ 375
51-60 $ 750
61-70 $2,000
over 70 $2,500
2)Allow taxpayers to exclude the value of medical insurance
benefits (including long-term care insurance benefits)
provided by their employer from gross income. The exclusion
is allowed for employer-provided insurance that covers the
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taxpayer, his or her spouse, and his or her dependents.
3)Allow employers to deduct their costs to provide health
insurance (including long-term care insurance) to their
employees, employees' spouses, and employees' dependents.
EXISTING STATE LAW authorizes a nonrefundable, $500 long-term
caregiver credit for eligible taxpayers. A taxpayer with
long-term care needs may claim the credit for him- or herself.
Alternately, the spouse or dependent of that taxpayer may claim
the credit if they help the taxpayer with his or her long-term
care needs. The credit is not allowed to married couples filing
jointly with adjusted gross incomes (AGIs) of $100,000 or more
or to other individuals with AGIs of $50,000 or more. The
credit is available through the 2004 tax year.
FISCAL EFFECT : None.
COMMENTS :
1)This bill is sponsored by the California Senior Legislature
and is intended improve the affordability of long-term care
insurance. This bill's author notes that increasing the
affordability of long-term care insurance will reduce both
federal and state governments' costs to provide long-term care
for the uninsured.
2)Providing long-term care for elderly family members and
children in need of it has become a significant challenge for
a large number of American families. According to information
compiled by the California Health and Human Services Agency
from a variety of state and federal sources, California is
home to approximately 600,000 persons with significantly
restricted function resulting from disability or illness. If
California follows national patterns, close to two-thirds of
these Californians are elderly. According to the Agency for
Health Care Policy and Research, about 15% of U.S. adults are
providing special care for seriously ill or disabled
taxpayers. Of those receiving care, 57% are aged 65 or over,
40% are working-age adults between 18 and 64 years of age, and
3% are children. The percentage of the population requiring
long-term care assistance is expected to grow over time as the
baby-boom population ages.
Much of this long-term care is provided on an informal basis by
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family members. Medicare (coverage for the elderly and
disabled) was not designed to cover long-term care. Medi-Cal
(coverage for those with low incomes or those who are indigent
due to health care costs) does help offset long-term care
costs but has historically focused on providing nursing home
coverage. For these and other reasons, many family members
invest significant time and money and undergo physical and
emotional strain to care for their loved ones at home or
nearby. Approximately three million Californians provide
about 2.8 billion hours of assistance to their loved ones at
an average cost of between $4,800 and $10,400 per caregiver.
These figures compare to costs of approximately $50,000 for
nursing home care.
3)Long-term care insurance is virtually untested as a means of
helping offset long-term care expenses. Only 1.5% of all
Americans have long-term care insurance, in part because of
its cost. Long-term care insurance premiums average $750 per
year for individuals who purchase the insurance at age 45 but
increase to nearly $4,000 for persons at age 70 and over
$6,700 for individuals at age 75.
According to the Center for Health and Long-Term Care Research,
every long-term insurance policy sold with automatic inflation
protection saves the Medi-Cal program approximately $14,000.
Although California ranks second among all states in sales of
long-term insurance policies sold, the state's penetration
rate is just under 7%.
4)Several measures have previously been introduced to offer
state income tax credits or deductions for the purchase of
long-term care insurance [e.g., AB 64 (Alquist) from the
2001-02 Legislative Session, AB 149 (Leach) from the 1999-2000
Legislative Session, AB 864 (Battin) from the 1999-2000
Legislative Session, and AB 2 (Alquist) from the 1999-2000
Legislative Session]. All of these bills failed due to cost
concerns.
REGISTERED SUPPORT / OPPOSITION :
Support
California Senior Legislature (sponsor)
Opposition
AJR 8
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None on file
Analysis Prepared by : Eileen Roush / REV. & TAX. / (916)
319-2098