premiums using the limited medical expense deduction allowed under Section 213 of the Internal Revenue Code. This section allows individuals to deduct medical expenses in excess of 7.5 percent of their adjusted gross income. Tax Exclusion for Employer-Provided Long Term Care Benefits We also recommend that long term care insurance be given the same tax-favored status granted to group health benefits. Specifically, benefits paid out and employer contributions for long term care insurance would be excluded from an employee's income. Also, we believe that employers should be allowed to deduct contributions to a long term care plan as a current expense and to offer long term care coverage as part of a cafeteria plan. Finally, we recommend that insurers be allowed to establish long term care reserves on a tax-favored basis after the insurance has been in force for one year. Allowing reserve build-up under the one year method would help insurers keep premiums as low as possible. 2. Improve public program for those not reached by private insurance. We believe that a realistic step for the federal government at this point would be to use any additional albeit limited - funds to help finance comprehensive and high quality long term care coverage for those who cannot participate in private programs - that is, the low-income, the disabled and the very old. This objective might be met by modifications to the Medicaid program -- such as providing home and community-based benefits for individuals up to the poverty level. We 3. Expand public long term care education activities. strongly support a government role in clarifying for individuals the nature, extent and risks of potential long term care expenses. Many older people continue to be under the impression that Medicare provides coverage for long term care. While this perception is slowly changing, public misunderstanding on this issue is clearly a major obstacle to the expansion of needed long term care coverage. We would also support government efforts to educate the public regarding eligibility criteria and benefits covered under the Medicaid program. This would give those individuals not - eligible for government long term care benefits or who do not wish to spenddown to Medicaid the opportunity to plan, if possible, for their long term care needs in advance private coverage is unattainable. before Conclusion The Blue Cross and Blue Shield Association endorses the basic concept of a public-private partnership as the most promising approach to assuring the availability of long term care services. We believe that, at this time, the best mix of public-private involvement would be for the federal government to support the development of the private sector long term care market for those who have access to such coverage and use its limited federal dollars to provide or improve long term care coverage for others for whom private insurance is not a viable option. If after several years, this approach proves inadequate and a feasible financing approach can be devised, the Congress may find it appropriate to consider an expanded role. We would urge the Congress to clarify, as soon as possible, the tax status of long term care products and to educate the public as to what benefits are and are not covered under public programs and that consumer protection standards be flexible enough to allow for innovative growth. We want to thank you for this opportunity to testify before the committee and we would be pleased to work with you as you continue to search for ways to finance long term care services. 0214r 1 Mr. WAXMAN. Thank you very much. STATEMENT OF GAIL SHEARER Ms. SHEARER. Mr. Chairman and Mr. Scheuer, Consumers Union appreciates the opportunity to present our views on the Pepper Commission recommendations regarding long-term care. We believe that the Pepper Commission's long-term care recommendations call for an appropriate mix of public and private roles in solving the long-term care problem. We have found that private long-term care insurance is not presently serving consumers well. Some of the problems are fixable. State insurance regulators can and, hopefully, will develop regulations to ensure that purchasers are protected against erosion of benefits by inflation, unscrupulous marketing and claims handling practices, unfair pricing practices, possible insurer insolvency, and other risks of the market. But the private long-term care insurance market alone cannot solve the Nation's long-term care problem. The private insurance market cannot help people who need long-term care because of a birth defect or tragic accident early in life. It cannot help people whose health conditions place them at high risk of needing longterm care and, therefore, cannot qualify for a policy. And it cannot help people who simply cannot afford the high cost of a policy year after year. In my testimony, I will outline the principles we believe should guide the development of a public long-term care program and comment on some of the Pepper Commission's recommendations. Consumers Union believes that the Government needs to take an active role in solving the long-term care problem. The principles that should guide development of a public program are as follows. It should protect people of all ages. It should be financed progressively. It should be comprehensive and universal. It should be selffunded. Administrative costs should be minimized. Cost sharing should be an integral part of the program, but should not impose undue hardship. Cost control and quality control should be built into the program. Costs should be shared equitably between generations. Regulation of the private market should be effective and strictly enforced. And, finally, public costs should be minimized while meeting consumers' needs. I would like to briefly expand on the most important principle, that the program should be comprehensive and universal. The program should cover both home health care costs and nursing home costs, and it should protect all Americans at risk of needing longterm care on a mandatory basis. In the long run, we believe the country should move away from a welfare approach to funding long-term care. The welfare approach is extremely inequitable. Since taxpayers already pay a large share of long-term care costs, public policy makers should understand why so many seek legal help to exploit loopholes to allow them or their parents to qualify for Medicaid. It does not seem fair to reward relatively sophisticated families with qualification for long-term care coverage and leave others, who comply with the spirit of the program, without any protection. We believe that a public program that protects all Americans against the devastating costs of long-term care is the best way to correct these inequities. Benefits should be available based on need, and revenues should be collected based on ability to pay. Resistance to higher taxes should be softened, because all Americans would benefit from the program, whether rich or poor. While the Pepper Commission has not yet elaborated on proposals for how to finance its long-term care program, the components of its long-term care program are consistent with the parameters that we have outlined, and its proposed financing criteria are sound. Some of its most significant features follow. The recommendations reflect the fact that the long-term care problem is not affecting the elderly alone. They encourage homeand community-based care; provide front-end, first 3 month nursing home coverage; and impose a reasonable cost sharing charge for people over 200 percent of the poverty level. They increase the level of assets protected before an individual becomes eligible for Medicaid benefits for long-term, lengthy nursing home stays. And they recognize the Federal Government's responsibility to establish minimum Federal standards for private long-term care insurance which would wrap around a Federal program. We commend the subcommittee for holding today's hearing. The long-term care problem is one that will only grow larger with time. Congress has an opportunity now to alleviate an enormous amount of human suffering by establishing a compassionate program to protect all citizens of our country against costs that can wipe out a family's savings very quickly. We urge you to carefully review the Pepper Commission's longterm care recommendations, and we are eager to help you as you continue on this important issue. [Testimony resumes on p. 140.] [The prepared statement of Ms. Shearer follows:] |