Honorable Robert Bunda

President of the Senate

Twenty-Second State Legislature

Regular Session of 2003

State of Hawaii

Sir:

Your Committees on Health and Human Services, to which was referred S.B. No. 1399 entitled:

beg leave to report as follows:

The purpose of this measure is to encourage the purchase of long-term care insurance by providing a refundable tax credit for payments made by an individual for long-term care insurance premiums.

Your Committees received testimony supporting this measure from the Department of Taxation, Hawaii Long Term Care Association, American Council of Life Insurers, Health Insurance Association of America, Association of Insurance and Financial Advisors-Hawaii, Healthcare Association of Hawaii, Legislative Information Services of Hawaii, Hawaii Medical Association, Chamber of Commerce of Hawaii, and one individual. Opposing testimony was received from the Kokua Council, Hawaii State Teachers Association, Coalition for Affordable Long Term Care, and two individuals. Comments were received from the Tax Foundation of Hawaii.

Your Committees find that Hawaii's aging population should not rely on the social security system or family to provide the necessary resources to sustain a decent and independent quality of life in their golden years. The situation is particularly precarious when an elder individual requires expensive long-term care for health and medical needs. The state of the local, national, and international economy is uncertain. Therefore, individuals must begin planning for their long-term care needs as soon as possible. One viable planning option is to procure long-term care insurance. Long-term care insurance provides individuals access to resources that will cover the costs of long-term care services when needed. Consequently, the overall burden of these services upon the individual, family, and government is reduced. Therefore, your Committees believe that implementing policies that encourage individuals to procure long-term care insurance is appropriate and in the State's interest.

However, your Committees do have concerns that this measure does not present the best solution. Long-term care insurance, in general, is expensive. A tax credit alone, does not mitigate the high premiums that must be paid. In addition, a tax credit is not an adequate incentive to encourage younger individuals to purchase long-term care insurance. Similar to other private insurance policies, individuals will be screened and persons with pre-existing conditions who would most likely require long-term care services would not be issued private long-term care insurance. Moreover, these tax credits directly reduce the revenues deposited in the State treasury for the benefit of a limited number of individuals who can actually afford long-term care insurance premiums.

Your Committees question whether a tax credit will significantly increase the number of individuals purchasing long-term care insurance. Lower income taxpayers are less likely to be able to afford the up-front costs of long-term care premiums or benefit from using a tax credit of this type. Additionally, your Committees were also concerned about enacting a measure that provided tax relief for individuals capable of purchasing long-term care insurance. Your Committees felt that the incentive might better be focused at the middle to lower middle income levels. As this measure receives further review, your Committees respectfully request the Committee on Way and Means to consider a credit similar to the Colorado model that provides a separate credit for individuals and married individuals below an established income threshold.

Your Committees prefer the approach taken in S.B. No. 1088, S.D. 1, which was also passed by this Committee. That measure establishes an actuarially sound long-term care social insurance program that will be funded by a long-term care income tax. Your Committees believe that approach guarantees that more individuals will have adequate resources to cover long-term care services.

Regardless, your Committees believe that this measure does provide an option that deserves further discussion and evaluation. Therefore, your Committees have amended this measure by:

As affirmed by the records of votes of the members of your Committees on Health and Human Services that are attached to this report, your Committees are in accord with the intent and purpose of S.B. No. 1399, as amended herein, and recommend that it pass Second Reading in the form attached hereto as S.B. No. 1399, S.D. 1, and be referred to the Committee on Ways and Means.