Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committee on Conference on the disagreeing vote of the Senate to the amendments proposed by the House of Representatives in S.B. No. 1088, S.D. 2, H.D. 2, entitled:

having met, and after full and free discussion, has agreed to recommend and does recommend to the respective Houses the final passage of this bill in an amended form.

The purpose of this measure is to establish a funding mechanism to implement Act 245, Session Laws of Hawaii 2002, relating to the Hawaii Long-Term Care Financing Act, and to create a long-term care income tax credit.

Act 245 established a Temporary Board of Trustees of the Long-Term Care Financing Act, to study the issue of providing a universal and affordable tax-based system of financing long-term care that is actuarially sound. This measure enacts the recommendations of the trustees as contained in their report to the Legislature, "The Hawaii Long-Term Care Financing Program" (November 2002). After much deliberation over nearly a year of study, and after consultation with long-term care providers, consumers, experts, and actuaries, the Trustees determined that a financially viable system would require a mandatory contribution from the public. While the Legislature is reluctant to denominate this contribution as a "tax", the contribution is referred to as a tax only because it is collected through the income tax collection mechanism.

This measure is the latest and best effort of the Hawaii State Legislature to design a long-term plan that is simple, effective, market-oriented, affordable, cost-efficient, consumer driven, and fair. It is the beginning of a move towards privatization of long-term care while reducing our reliance on the state Medicaid program to provide that care. It also acts as a stimulus for the private insurance market to sell more policies and to develop new and affordable supplemental plans.

This measure represents the culmination of fifteen years of legislative and administrative efforts, beginning in 1988, to provide long-term care to Hawaii's older adults and disabled population. Over the years, we have seen several studies, task forces, planning boards, reports, and measures, all designed to address the State's compelling need to create an affordable and universal method of financing long-term care services. Finally, in 2002, the Legislature enacted Act 245, to establish the long-term care financing program, which created a temporary board of trustees to design a tax-based plan.

According to research of the University of Hawaii, nearly a quarter of Hawaii residents will be 65 years of age or older by the year 2030, with the first wave of baby boomers turning 65 in 2011. Hawaii's elderly population is growing at a faster rate than most states. In just a matter of a few years, 1 out of 5 people in Hawaii will be over the age of 60. It has been estimated that 3 out of 4 people over the age of 65 will need some type of long-term care service in their lifetime.

More precisely, according to the State of Hawaii population projection, in the year 2000, there were 207,000 individuals age 60 or older, and in the year 2010, the estimate is for that figure to swell to 272,000. In addition, the average life expectancy of a Hawaii resident is 78.85 years. As our population ages, the assistance that is needed grows as well as the costs of care.

As the baby boomer generation ages, these figures are projected to increase causing a host of social and economic demands. Aging brings concomitant chronic health diseases such as cancer, cardiovascular disease, diabetes, and stroke, all of which necessitate intense daily care in the latter years of life. A report by a local health research firm and major health insurer in 2001, assessing Hawaii long-term care needs, stated that the implication is that the increasing proportion of elderly in Hawaii's population signals the need to monitor the ability of health care resources to meet the elderly's greater need for long-term care services (particularly on the Neighbor Islands). The report further concluded that the proportion of the population deemed "work age" (19-65) is decreasing relative to the elderly population, raising questions about the social burdens this decreasing population segment must bear. In essence, inevitably, a fewer number of Hawaii's working people will be paying for the care of more elderly and others needing long-term care.

The costs of long-term care are expensive. Private day health care costs $65 per day. Expanded care adult residential care homes charge up to $3,000 or more per month for private pay residents, while skilled home care visits cost on average about $85 per visit. Nursing home costs average between $5,000 and $7,000 per month. The Executive Office on Aging predicts that by the year 2020, Hawaii families may face nursing home costs of at least $200,000 per year per person!

The whole dynamic of the extended family will radically change to place an impossible financial and social hardship on Hawaii's families. As people age or become disabled, they need services to help with activities of daily living (such as bathing, continence, dressing, eating, toileting, and transferring). In keeping with the Ohana spirit, Hawaii families normally prefer to care for their loved ones in the home rather than in an institutional setting. But, caring for a family member in the home all day long usually means that another family member must either quit work or work part-time. The resulting sacrifice of income can have serious consequences for family cohesion.

Current methods of financing long-term care in Hawaii involve predominantly Medicaid, private insurance, and personal assets. Medicaid eligibility is qualified by income limits. Private insurance is not widespread (the Executive Office on Aging estimates that only 6 percent of Hawaii residents have long-term care insurance), because it is generally too expensive for most people to purchase (of course, plans and benefits vary widely from company to company with some plans being more affordable than others). Most people have insufficient personal assets to pay for long-term care (resulting in a spend down of assets with the aim of becoming eligible for Medicaid).

Medicaid, the state program for the poor, now pays for three out of four people in Hawaii who receive long-term residential care. Medicaid is supported about equally by state and federal dollars. It is estimated that each taxpayer in Hawaii contributes more than $400 every year towards the Medicaid program.

This deplorable situation begs the question: where does this leave most folk to pay for long-term care?

There is a compelling need to create an affordable method of financing long-term care services, because increasing numbers of Hawaii's residents will need these services. It is incumbent upon the State to provide long-term care to the elderly and disabled. However, the inextricable reality of the current economic condition of the State is that state revenues are down and other state services could be affected accordingly. Nonetheless, the Legislature is determined not to allow fortuity and timing to sabotage a plan that has been in the making for at least fifteen years. Even during sunnier economic days, the time will never be "right" for a state-sponsored long-term care financing system.

In developing the funding mechanism, the Temporary Board of Trustees sought and received information and advice from one of the two national actuaries engaged by the federal Office of Personnel Services to evaluate long-term care insurance proposals for coverage of federal government employees. The Trustees also sought to respond to questions and issues raised during the 2002 Legislative Session by legislators and others.

Every dollar collected under this measure will be paid out in the future to taxpayers by way of long-term care benefit payments. These benefits under this measure have been actuarially estimated to cover seventy-five per cent of the costs for the first year of home and community based care, which is typically the most prevalent and preferable for most people. The amounts collected will be held in a trust fund to be used for no other purpose than for paying for long-term care services. To ease the burden of paying the collected amount, this measure provides a long-term care tax credit for those who purchase additional long-term care insurance.

These measures, as well as Act 245, have been carefully and meticulously crafted in collaboration with experts in long-term care actuarial science and long-term care plan administrators and providers. All other states are struggling with the same problem of financing long-term care, so we are not alone, but Hawaii is now taking the lead in the nation, as Hawaii has a proud tradition of so doing, in this matter of national importance.

This measure is intended to supplement, not supplant long-term care insurance. The benefit payments under this measure are intended to pay for a portion of the costs of long-term care services. The goal is to ease the financial burden, and this measure will go a long way for many people in that regard.

Your Committee on Conference believes that the public should be encouraged to purchase private long-term care insurance in order to relieve the financial burden on Medicaid and other governmental services.

Your Committee on Conference has deleted the contents of this measure and inserted the provisions of its companion measure, H.B. No. 1616, SD2, with the following amendments:

As affirmed by the record of votes of the managers of your Committee on Conference that is attached to this report, your Committee on Conference is in accord with the intent and purpose of S.B. No. 1088, S.D. 2, H.D. 2, as amended herein, and recommends that it pass Final Reading in the form attached hereto as S.B. No. 1088, S.D. 2, H.D. 2, C.D. 1.