Congress Takes Up Long-Term Care Proposal

Published November 1, 2005

On September 15, Sen. George Allen (R-VA) introduced S. 1706, the Long-Term Care Act of 2005. The legislation, if passed, will make it possible for individuals to use money from their 401(k) and 403(b) plans to purchase long-term care insurance with pretax dollars without penalty.

The Long-Term Care Act is similar to companion legislation, H.R. 976, introduced February 17 in the House by Rep. Lee Terry (R-NE). H.R. 976 would allow individuals to use their Individual Retirement Account (IRA) pretax dollars without penalty in addition to using their 401(k) and 403(b) plans.

S. 1706, cosponsored by Sen. Mel Martinez (R-FL), was referred to the Senate Judiciary Committee. The House bill, with 52 sponsors, was sent to the House Subcommittee on Health in March.

‘Perfect Storm’ Coming

“Now that baby boomers are getting ready to retire and life expectancy continues to increase, America is approaching perfect-storm conditions for long-term care financing,” said Angela Hunter, federal affairs director for the Council for Affordable Health Insurance (CAHI). “Once the 77 million baby boomers retire, the 65-years-and-older population will double. Many of them at some time will require long-term care. Long-term care insurance is not only a smart move for somebody planning to retire, but it will help save Medicaid billions.”

By the year 2030, Medicaid’s nursing home expenditures are expected to reach $130 billion per year. Private long-term care insurance could reduce Medicaid’s future institutional care expenses by more than $40 billion each year, while giving those who are insured alternatives to nursing homes, such as home care, adult day care, foster care, and assisted living.

“I believe Senator Allen’s proposed legislation has a good chance of passage,” said Terry Truesdell, president of the National Long Term Care Network. “His approach empowers individuals to use their own money currently deposited in 401(k) or 403(b) accounts to pay long-term care insurance premiums.

“Since both accounts have pre-tax contributions,” Truesdell added, “[the] legislation would not create an additional tax deduction but would allow long-term care insurance premiums to be deducted from their own account without being taxed as ordinary income or being subjected to the pre-59-1/2 year-old early withdrawal penalty. Since many employers match a portion of an employee’s contribution, this would be a great way of helping millions of workers buy long-term care insurance.”

Little Opposition, Some Obstacles

Other long-term care legislation is pending in Congress. Rep. Nancy Johnson (R-CT) is the sponsor of the primary bill the long-term care industry has been backing for years, most recently introduced in May as the Long-Term Care Retirement and Security Act of 2005 (H.R. 2682). It has wide, bipartisan support, but it would cost $30 billion over 10 years.

Some supporters of the Johnson bill would prefer not to see new legislation arise because an alternative plan might sap support from their bill, even though it is doubtful Congress will support that kind of expenditure.

Also, CAHI’s Hunter adds, “Senate passage this year may prove elusive due to lack of time on the legislative clock. Congress must pass the remaining appropriations bills [for funding of government agencies], budget reconciliation, and disaster relief. The Senate will also be tasked with confirming another Supreme Court Justice.”

Nonetheless, Hunter said, “If action doesn’t occur in the current session, Congress may well move forward next year on the Long-Term Care Act.”

Merrill Matthews ([email protected]) is director of the Council for Affordable Health Insurance.

For more information …

More than two dozen documents on long-term care are available through PolicyBot™, The Heartland Institute’s free online research database. Point your Web browser to, click on the PolicyBot™ button, and select the topic/subtopic combination Health Care/Long Term Care.