Report Title:

Long-Term Care; Trust Fund; Tax Credit

 

Description:

Establishes a long-term care insurance trust fund to provide tax incentives and subsidies for purchase of long-term care insurance.

 

HOUSE OF REPRESENTATIVES

H.B. NO.

1343

TWENTY-FIRST LEGISLATURE, 2001

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

Relating to long-term care.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. As our population ages, the eventuality of long-term care becomes a future state filled with uncertainty and unanswered questions. Among them, is how will the expected higher costs associated with long-term care be financed and by whom. Both government and families, young and old, search for solutions that will treat the elderly with both compassion and fairness. While America is an "aging" nation, Hawaii's elderly population has been growing at a faster rate than the rest of the nation. If we, as a State with a rich cultural and social history of respecting and caring for its elders, are to assure them that they will continue to live with dignity and will enjoy their remaining years without worry or becoming a burden to their families, we must address the financial dilemma that this rapid increase poses to everyone, as individuals or as members of our larger family---the State.

By 2010,Hawaii's elderly population sixty years and older will grow in absolute and relative terms to 299,500, or twenty-one per cent (one of every five persons) of the population. Our population eighty years and older, which represents the segment of the elderly most at risk, will nearly triple by 2010. In another ten years (2020), one of every four Hawaii residents will be sixty years and older.

For Hawaii, the social and the financial implications of the increased demand for long-term care cut across all strata of our society and indicate that different long-term care financing methodologies be pursued. According to some estimates, the costs of long-term care are expected to grow almost exponentially by the year 2020. Families who pay will have to pay substantially more. Hawaii families may be increasingly forced to convert their financial assets to pay for the costs of adequate long-term care. For the State, the costs and demand for a larger share of general tax revenues needed to finance the Medicaid program to keep pace with these costs can be expected to concomitantly increase.

The resulting financial dilemma that this greater demand for long-term care poses for our society and State is unarguable. In the past, for some, the solution to this was continued reliance on government programs. For others, the preferred alternative has been reliance upon the private sector and the relatively new long-term care insurance products. Different studies have indicated that few individuals who buy long-term care insurance will maintain this coverage until it is needed or those (elderly) who have the greatest need for this insurance cannot afford to buy it. It is critical that the State adopt a strategy that makes the purchase of long-term care insurance by our residents an affordable and reasonable alternative means of paying for the costs of long-term care for their families and themselves. Maintaining the "status quo" will result in greater numbers of Hawaii residents converting their hard-earned financial assets to pay for long-term care. For the State, increasing amounts of scarce general tax revenues will be used to pay for the Medicaid program.

This Act presents such a strategy by establishing a long-term care insurance trust fund to provide tax incentives and where necessary, subsidies to individuals and families to purchase and maintain long-term care insurance coverage. The trust fund would be initially financed by earmarking a per cent of the scheduled decrease in the personal income tax rate and depositing the resulting unappropriated general fund moneys into the fund. Over time the fund, through its investment and other income earnings, would pay for the costs of the tax credits and subsidies and the reduction to the personal income tax rates fully restored. This strategy encourages individuals and families to secure the means to pay for the costs of their long-term care, enables individuals and families to preserve their financial assets and reduces the financial impact on our State's limited revenues.

SECTION 2. The Hawaii Revised Statutes is by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

LONG-TERM CARE TRUST FUND

§ -1 Definitions. As used in this chapter, unless the context clearly requires otherwise:

"Board" means the board of trustees of the long-term care trust fund.

"Fund" means the long-term care trust fund.

"Investment manager" means any fiduciary, who has been designated been designated by the board to manage, acquire, or dispose of the fund's assets, a bank as defined by law, or an insurance company qualified to perform services under laws of more than one state.

"Long-term care insurance" means any insurance policy or rider advertised, marketed, expense incurred, indemnity, prepaid, or other basis, for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services, provided in a setting other than an acute care unit of a hospital. The term includes group and individual annuities and life insurance policies or riders that provide directly or that supplement long-term care insurance. The term also includes a policy or rider that provides for payment of benefits based upon cognitive impairment or loss of functional capacity.

Long-term care insurance shall not include any insurance policy which is offered primarily to provide basic medicare supplement coverage, basic hospital expense coverage, basic medical-surgical expense coverage, hospital confinement indemnity coverage, major medical expense coverage, disability income or related asset-protection coverage, accident only coverage, specified disease or specified accident coverage, or limited benefit health coverage.

With regard to life insurance, this term does not include life insurance policies which accelerate the death benefit specifically for one or more of the qualifying events of terminal illness, medical conditions requiring extraordinary medical intervention, or permanent institutional confinement, and which provide the option of a lump-sum payment for those benefits and in which neither the benefits nor the eligibility for the benefits is conditioned upon the receipt of long-term care.

"Long-term care insurance premium" means payments made by a qualified insured to purchase long-term care insurance coverage.

§ -2 Long–term care insurance trust fund; establishment, purposes. There is established in the state treasury, the long-term care insurance trust fund. The fund shall be under the control of the board established under section -3 and consist of appropriations, contributions, interest, income, dividends, deposits from funds collected under section 235-119, and other returns. The director of finance shall have custody of the fund. The fund shall be used to:

(1) Effective January 1, 2005, pay per cent of any long-term care insurance premium payments made by a resident taxpayer, who files a resident income tax return, and whose gross income is less than $ for the taxable year;

(2) Effective January 1, 2005, reimburse the general fund for long-term insurance tax credits as provided for in section 235- ; and

(3) Pay for the operation of the fund.

§ -3 Board of trustees. (a) The board of trustees of the long-term care trust fund shall consist of members, who shall be appointed by the governor as provided in section 26-34.

(b) All trustees shall be appointed for terms of four years, except that the terms of the trustees first appointed shall be two or four years as designated by the governor at the time of appointment.

(c) The trustees shall elect a chairperson from among their members.

(d) Each trustee shall serve without compensation, but shall be reimbursed for expenses, including travel expenses necessary for the performance of the trustee's duties.

(e) The board and staff under section -5 shall be placed in the department of budget and finance for administrative purposes only.

§ -4 Powers of the board. Except as otherwise provided by law, the board of trustees of the long-term care trust fund may:

(1) Sue and be sued;

(2) Have a seal and alter the same at its pleasure;

(3) Develop and implement a long-term care financing strategy that will offer maximum benefits to Hawaii residents;

(4) Collect, receive, hold, and disburse all moneys payable to or by the long-term care fund;

(5) Pay money from the fund to effectuate the fund's purpose, including costs incurred in establishing and administering the fund;

(6) Invest the fund's principal and income without distinction between principal and income and keep the fund's assets invested in real or personal property including securities;

(7) Manage the fund's assets, except to the extent that the management of the assets is delegated to qualified investment managers;

(8) Appoint investment managers to manage, acquire, or dispose of any of the fund's assets. The investment manager shall be registered as an investment advisor under the Investment Advisers Act of 1940 (chapter 856, 54 Stat. 789), or a bank as defined in the Investment Advisiters Act of 1940 (chapter 856, 54 Stat. 789), or an insurance company qualified to manage, acquire, or dispose of any asset of similar plans under the laws of more than one state, and shall acknowledge in writing that it is a fiduciary of the system and shall be liable for breaches of any applicable fiduciary responsibility, obligation, or duty imposed by this chapter;

(9) Develop and maintain a long-term care information data system to support and effectuate the purposes of this chapter;

(10) Contract with and employ persons including, but not limited to doctors, attorneys, adjusters and any other experts and pay compensation and expenses in connection therewith, without restrictions or requirements affecting public officials and employees under chapters 84 to 90.

(11) Do all the things necessary and convenient to carry out the purposes of the fund.

§ -5 Executive director; employees. The fund shall employ an executive director to be appointed by the board, without regard to chapters 76 and 89. The executive director shall serve at the pleasure of the board, and shall act as the chief executive officer of the fund and manage and conduct the day-to-day business of the fund according to the directions and policies of the board.

The fund may employ, without regard to chapters 76 and 89, and may at its pleasure dismiss such persons as it finds necessary for the performance of its functions and fix their compensation.

SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Long-term care insurance tax credit. Effective January 1, 2005, there shall be allowed to each taxpayer, subject to the taxes imposed by this chapter, who files a resident income tax return for a taxable year and whose gross income is over $ a long-term care insurance tax credit which shall apply to the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed. The tax credit shall be an amount equal to per cent of the cost of any long-term care insurance premium payments made by the taxpayer for the taxable year in which the payments were made.

For the purpose of this credit, the "net income tax liability" means net income tax liability reduced by all other credits allowed under this chapter.

If the tax credit under this section exceeds the taxpayer's income tax liability, the excess of the tax credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted. All claims, including any amended claims, for tax credits under this section shall be filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit."

SECTION 3. (a) Section 235-119, Hawaii Revised Statues, to the contrary notwithstanding, on June 1, 2002 and June 1 of each year thereafter, the director of taxation shall determine the additional amount of revenue that would have been raised through the collection of income taxes for the tax year ending on the previous December 31 if the rate of tax applicable to each tax bracket under section 235-51, Hawaii Revised Statutes, had in fact been a specified rate that was higher than the rate actually in effect at the time.

For purposes of subsection (a), the specified rate shall be an amount that represents one-half of the amount by which the rate for that tax bracket has been reduced, because of Act 157, Sessions Laws of Hawaii 1998.

(c) The director of taxation shall certify the amount calculated in subsection (a) to the director of finance, who shall deposit a sum equal to that amount into the long-term care trust fund established under chapter , Hawaii Revised Statutes.

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect upon approval.

INTRODUCED BY:

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