BILL ANALYSIS
AJR 8
Page 1
ASSEMBLY THIRD READING
AJR 8 (Mountjoy)
As Introduced February 20, 2003
Majority vote
REVENUE & TAXATION 7-0
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|Ayes:|Chavez, Wyland, Harman, | | |
| |Laird, Leno, Simitian, | | |
| |Firebaugh | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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. 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 allow:
1)Taxpayers who itemize to claim a deduction for unreimbursed
medical expenses that exceed 7.5% of their adjusted gross
incomes (AGIs). 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)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
AJR 8
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for employer-provided insurance that covers the taxpayer, his
or her spouse, and his or her dependents.
3)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 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 : This bill is sponsored by the California Senior
Legislature and is intended to 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.
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
family members. Medicare (coverage for the elderly and
disabled) was not designed to cover long-term care. Medi-Cal
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(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.
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%.
Several bills 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.
Analysis Prepared by : Eileen Roush / REV. & TAX. / (916)
319-2098 FN:
0000493