HEARING - U.S. Senate Special Committee on Aging

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Similarly, the proposal for a 50% tax credit for long-term
care insurance premiums for persons over age 55 (p. 109) is not
likely to yield net social benefits. Our key concerns are: (1)
the private long-term care market will not perform any better
than the medicare supplement insurance has and the tax credit
will end up subsidizing insurance industry profits rather than
patient care (see section I above); (2) the policies are going
to be available only to a portion of the Medicare-eligible
population. They will not be available, in particular, to the
least healthy elderly, who are most likely to need long-term
care services; (3) the "tax expenditure" (i.e., lost federal
revenue) is likely to be considerable, and will be borne by all
taxpayers. In sum, the costs of this proposal may exceed the
social good, with inequitable distribution of the costs and
benefits.
The Report also recommends changing tax treatment for
long-term care insurance reserves, to make it more favorable to
the insurance industry (p. 109). This is based on a "trickle
down" theory that some of the savings might be passed through to
consumers. It is not clear that taxpayers should be forced to
pay the cost of what is at best a questionable savings to
consumers of private long-:erm care coverage.
The tax system creates subsidies that are hidden from
policy makers. It is interesting to note that the federal
government spends approximately the same amount on its
contribution to the Medicaid program as it does for the
exclusion from taxes of employer contributions for medical