HEARING - U.S. Senate Special Committee on Aging

112
- 10-
Consider first the proposal for Individual Medical
Accounts (IMAs). Under the proposal "[i]ndividuals would be
permitted to deposit a certain amount of money (e.g. $1000
maximum) each year into a savings account restricted to use on
long term care expenses. Interest accumulations would be tax
free and withdrawals would not be taxed or penalized as long as
their use was for nursing home care" (p. 107). (In discussing
this option, the Report suggests that IMA deposits might be
excused from taxation (as are Individual Retirement Accounts) or
qualify the depositor for a limited tax credit (p. 78). "Fifty
percent of the interest on the account would be used to fund a
risk pool that would cover expenses incurred for nursing home
care after the balance in the account had been exhausted" (p.
78-79).
This proposal is very complicated and the Report fails to
analyze its likely impact. Our key concerns are: (1) The people
who are likely to fund an IMA are likely to be those with the
highest incomes. Low income families simply would not be able
to afford the contribution. Middle income families would be
likely to fund IRAs first (if eligible) and might then consider
whether to participate. The difficulty of predicting future
expected benefits of contributing to an IMA would discourage
participation. overall, we would not predict a very high
participation level; (2) the costs are borne by all taxpayers:
as federal tax revenues are expended on this program, all
taxpayers bear the cost. Hence, we believe that the IMA
proposal's costs may exceed its social good, and that its
benefits and costs are inequitably distributed.