Well, it’s back again — the state long-term care insurance tax proposal. Remember this is the $10 per month tax that is supposed to provide you with a benefit equal to $70 per day for 365 days should you need long-term care.
While the governor has already indicated that she will veto such a proposal, it appears lawmakers seem hell-bent on putting it on the governor’s desk in a battle of one ups-man ship. Unfortunately, no one will win in this political tug-of-war as neither side of the issue has moved to find a common meeting place of compromise.
There is no doubt that the issue of long-term care needs to be addressed especially in light of the aging population and with the golden years just beyond the horizon for baby-boomers, the problem will grow. However, creating a false sense of security by adopting a social insurance will make the problem worse and not better.
Everyone seems to agree that the amount of the benefit is not enough to cover institutional long-term care, but proponents point out that it is enough to provide in home care so that a person does not have to be put into an institutional setting.
And that may be well and good, but if people who are ignorant of the cost for institutional care are led to believe that this coverage will take care of all their needs, we may find there will be even more people who will not be able to afford long-term care. In other words, if people come to rely solely on this state run insurance for long-term care and their needs somewhere down the line are greater than in-home care, they will be faced with the same dilemma that many of the proponents of the plan bemoan, the high cost of institutional long-term care.
Encouraging what will be the next generation of those who will need long-term care to purchase private policies will reduce the demand for publicly financed care. Whereas proponents argue that young people simply have other priorities, what do they think the $10 per month will mean to these same young people?
Because older taxpayers are more likely to need that long-term care coverage in the near future, they will be the first to benefit from the coverage while younger taxpayers will be asked to foot the bill.
However, when it comes time for those younger taxpayers to benefit from the plan, either the plan will have no money to pay benefits or the cost of the tax will have increased so much that it would have been better to take out private long-term care insurance.
But like Social Security the point will come when the system will be faced with a fiscal crisis because there will be more benefits being paid out than there will be contributions to the system. Thus, the premiums or tax will surely have to be increased.
Proponents argue that the money will be invested wisely so that the earnings from the invested funds should preclude having to raise the premium anytime soon — regardless of the fact the bill already provides that the tax will more than double within the next ten years. However, if that is the case, then more than likely the funds will have to be invested outside the state as there are few, if any, investments in Hawaii that will produce double digit returns on investments.
That is what is ironic — that at a time when lawmakers have been trying to lure investors to Hawaii to stimulate the economy, this plan will send more than $100 million a year out of the state so that there will be sufficient returns on the premiums invested to cover the benefits that will be paid out.
More importantly, because this new tax will require tracking of the payment and the taxpayer, new records will have to be kept. Businesses who are required to withhold the $10 a month will have to keep track of from whom they withheld the tax. Either the tax department or the third party provider of the insurance will have to keep track of who paid into the system at least ten years and whether or not they stopped paying, because once the taxpayer stops paying, they begin to lose benefits. If the taxpayer has not paid into the system for ten years, then the taxpayer is entitled only to a fraction of the daily benefit.
In a year when lawmakers are faced with millions of dollars in budget short falls, are they really willing to raise a tax to fund a new program of long-term care insurance that will raise more the $100 million while they let education and other state programs go begging?
”’Lowell L. Kalapa is the president of the Tax Foundation of Hawaii, a private, non-profit educational organization. For more information, please call 536-4587 or log on to”’ https://www.tfhawaii.org