Establishes various long term care savings plans and provides certain tax credits

Summary of specific provisions

Section 1: The elder law is amended by adding a new article 4 to establish various long term care savings accounts, specifically;

Long term care savings account plan. A program in which a qualified individual over the age of 50 may make withdrawals as a participant in the long term care savings account program to pay or reimburse long term care insurance premiums, or pay or reimburse eligible long term care expenses for themselves, a spouse,, or parent, or another person for whom the account holder has an insurable interest, including to pay or reimburse long term care insurance premiums. A lifetime maximum of one hundred sixty-five thousand dollars may be contributed by a participant, and such amount shall be increased annually by the same Percentage 'as the federal consumer price index. The commissioner of health shall select an administrator of the plan from submitted proposals, to receive contributions and account deposits, and promulgate rules and regulations to. carry out his or her duties under this paragraph. If an administra- tor is selected, the long term care savings account program trust shall be created pursuant to section ninety-nine-t of the state finance law. The commissioner shall be the trustee of such, responsible for the administration, operation, and maintenance of the plan, and the comp- troller shall have fiduciary responsibility to make all decisions regarding the investment of the money in the trust.

Qualified long term care savings account program. A program where quali- fied long term savings accounts are offered by an employer for the bene- fit of an employee, where a contribution can be made on behalf of the employee of all or part of the premium differential realized by the' employer based on the purchase of a qualified higher deductible health plan for the benefit of the employee; or in the case of a self-employed or other individual, a contribution to the account of amounts to pay eligible long term care expenses. The account administrator shall utilize moneys for the purposes of reimbursing the employees eligible long term care expenses.

Qualified long term care flexible spending account program. An individ- ual who has been refused coverage for long term care insurance may establish a qualified long term care flexible spending account subject to the approval of the commissioner. The owner of such account may annu- ally contribute, or have contributed on his or her behalf, an amount of up to ten thousand dollars, to be increased annually by the same percentage as the percentage in the federal consumer price index.

An account holder may make withdrawals pursuant from his or her account pursuant to this article to pay or reimburse eligible long term care expenses, and in the case of a long term care savings plan program, a qualified individual may make withdrawals to pay or reimburse premiums. Principal contributed to an account established pursuant to this article and money paid or reimbursed shall be exempt from taxation. If an account holder withdraws money for any purpose other than to pay or reimburse eligible long term care expenses or premiums, the amount is income subject to taxation, the account holder shall pay a penalty equal to ten percent of the amount of the withdrawal, and the interest earned on the account is taxable. Rules and regulations upon the death of the account holder, cancellation, or transfer of the account, are estab- lished, subject to the terms and conditions set by the commissioner.

Section 2: Subdivision 1 of section 190 of the tax law is amended to include the lesser of one thousand five hundred dollars or twenty percent of the amount contributed to a qualified long term care flexible spending account.amended to or twenty

Section 3: Subsection (aa) of section 605 of the tax law is term care include the lesser of one thousand five hundred dollars percent of the amount contributed to a qualified long flexible spending account.

Section 4: Subsection (c) of section 612 of the tax law is amended to include contributions made during the taxable year by or on behalf of the owner of an account established pursuant to article four of the elder law, to the extent not deductible or eligible for credit for federal income tax purposes, provided, however, the exclusion shall not exceed ten thousand dollars.

Section 5: The tax law is amended by adding a new section 31 to define rules concerning long term care accounts. A taxpayer who establishes such account shall be the owner of such accounts. In the case of a qual- ified long term care flexible spending account, the owner shall be eligible for credits pursuant to section one hundred ninety and six hundred six of this chapter, and deductions pursuant to subsection (c) of section six hundred twelve of 'this chapter. Any individual who. contributes to a qualified long term care flexible spending account, irrespective of whether such individual is the owner of such account, shall be eligible for the long term care insurance credits pursuant to sections one hundred ninety and six hundred six of this chapter. The proceeds of an account established pursuant to article four of the elder law may be used to pay for any long term care expenses permitted pursu- ant to such article, provided that distributions to pay for services or items not permitted shall be subject to a penalty of ten percent of every dollar so expended during the lifetime of such account, Rules and regulations for the tax treatments upon the death of the account holder, cancellation, or transfer of the account, are also established.

Section 6: The state finance law is amended by adding a new section 995 to crate the long term care savings account program trust, in the joint custody of the comptroller and the commissioner of taxation and finance,

in the miscellaneous special revenue fund, consisting of all moneys received by the state and to be expended solely for the purposes defined pursuant o section four hundred two of the elder law. Under no circum- stances hall the moneys in such account be commingled with any other moneys.

Section 7: Contains a severability clause.

Section 8: States the effective date, and date of repeal.

Justification

According to the State Commission on Health Care Facili- ties in the 21st Century, the need for long-term care is expected to grow substantially in the future. While need cannot be predicted with certainty, total public and private spending for long-term care for the elderly could double from 2000 to 2025, even assuming no expansion of benefits. How these added costs would be financed is unclear.

Long-term care is so costly that for most people who remain in the system for any length of time impoverishment is inevitable. This result is ruinous to individuals, irrational public policy, and counterproduc- tive: The threat of losing a lifetime's worth of resources leads some individuals to take advantage of such legal devices as Medicaid trusts or the rule of halves, which artificially impoverish them and require the public sector to pay their health care costs. The irony in this situation is that the state's refusal to address the care costs of indi- viduals prior to impoverishment is resulting in increased reliance on the state to pay for care.

A first step in reforming the State's long term care system is to promote personal responsibility by increasing access to affordable long term care insurance.' As important as the changing perception of Medi- caid as the primary financier of long term care is guaranteeing the availability of a wide range of options for non-Medicaid financing of long term care services.

This legislation adopts a three-pronged approach to that end. While States including New York have offered tax incentives, for long-term care expenses, the long term care savings plan program option includes incentives to both save and pay for long term care expenses and premi- ums. The long term care savings plan program would allow consumers to deposit as much as $165,000 per person into a tax-free savings or investment account managed by the State Comptroller.

Mature workers would greatly benefit from the long term care savings plan program option. For younger workers who are aging in place who may incur long term care expenses for a parent, or in the future for them- selves or a spouse, an employer-based qualified long term care savings account program is the second program provided for by this legislation.

For individuals who applied for long term care insurance but were denied due to the underwriting process would have the option, under the third option in the legislation, the qualified long term care flexible spend-

ing program, to place a defined amount of money in a qualified long term care flexible spending account each year. This amount would be defined as a sum not to exceed twice the current annual IRA contribution limit allowed under the Internal Revenue Code and applicable U.S. Treasury Regulations. Amounts placed in the account annually would be eligible for the same tax deductions available to those who contribute to an IRA account.

By creating long term care savings accounts, the options for those who purchase long term care coverage for themselves or family members, or who incur long term care expenses, the options for financing long term care without using publicly-funded services will be enhanced.

Prior legislative history

New bill.

Fiscal implications

As the elderly population grows, there are few options available to elderly people that enable them to afford the exor- bitant costs of long-term care. Some consumers have planned ahead and have purchased long-term care insurance, while others have not planned at all. As the elderly population becomes increasingly reliant on the State for long-term care, the State must look towards improving long- term care financing mechanisms in order to protect consumers and the State's general fund. Actuarial studies have determined that the state will save money under every scenario.

Effective date

This act shall take effect on the ninetieth day after it shall have become a law and shall expire December 31, 2020, when upon such date the provisions of this act shall be deemed repealed.