NOVEMBER 25, 1996 VOLUME 4, NUMBER 21
Last August, President (and Candidate) Bill Clinton signed the Health Insurance Reform Act, better known as the Kassebaum-Kennedy bill after its two principal sponsors. Much has been written about the effect of the new legislation on the elderly, but most of the focus has been on the bill's provision making it a crime to transfer assets for the purpose of gaining Medicaid eligibility. Other provisions of the new law have potentially far-reaching effects as well.
The Good News
The primary focus of the new legislation is "insurance portability." Many workers have found that they are unable to change jobs (even to higher salaries and better positions) because of the inability to secure medical insurance coverage for pre-existing conditions. The new law should eliminate that problem; insurers must cover pre-existing conditions for workers who have maintained continuous medical insurance coverage, and there is a time limit of one year for most pre-existing condition exclusions in any event.
The new law also forces insurance companies to make policies available to smaller employers, and expands the right of workers to continue their insurance programs after leaving employment. Both of these changes are intended to make insurance more widely available to the small-company employee and self-employed workers. This goal is further advanced by increasing the income tax deductibility of health insurance premiums for the self-employed.
The most important new provision for seniors, however, is to make clear that nursing home and home health care costs are fully tax-deductible. While many practitioners advised claiming most or all such long-term care costs as medical deductions in previous years, the law was unclear. The new provision removes any uncertainty and provides clear tax relief to long-term care patients, at least those with incomes high enough to be concerned about taxes.
Similarly, the cost of long-term care insurance will now be an income tax deduction, just as health insurance has been for years. This provision may encourage at least some taxpayers to purchase long-term care insurance, and may help make the industry more robust and effective. Unfortunately, the tax break is only going to apply to those with relatively high incomes, and so will provide little relief for low or middle-income citizens.
The Bad News
Of course, the most dramatic bad news for those faced with long-term care costs is the criminalization of some gifts. Under the new law, anyone who "knowingly and willingly" transfers assets (that is, makes a gift) to qualify for Medicaid may have committed a felony. Even in the face of this somber news there remains a ray of hope, however; the new law is so poorly written and so ambiguous that it seems unlikely to result in any prosecution or administrative action. Still, those who would otherwise consider planning to make themselves eligible for long-term care assistance must now seriously consider the possible punitive effect of the new law.
Even as the new law encourages the development of long-term care insurance as another option for financing nursing home (and home health) care, it also opens the door to a new kind of abuse. Insurers are permitted to sell overlapping and redundant policies, without any requirement of disclosure or review of existing long-term care insurance. Observers who recall the abuses by insurance companies (and agents) selling multiple "Medigap" policies prior to government regulation may well cringe at the prospect of another insurance feeding frenzy, preying on the legitimate concerns and accepting manners of a burgeoning elderly population.
Most observers expect further changes to be debated in Congress again this year. Stay tuned.