STAND. COM. REP. NO.2139

Honolulu, Hawaii

, 2002

RE: S.B. No. 2416

S.D. 1

 

 

Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2002

State of Hawaii

Sir:

Your Committee on Health and Human Services, to which was referred S.B. No. 2416 entitled:

"A BILL FOR AN ACT RELATING TO THE HAWAII LONG-TERM CARE FINANCING ACT,"

begs leave to report as follows:

The purpose of this measure is to enact the Hawaii Long—Term Care Financing Act that creates a mandatory income tax assessment system to finance long—term care services.

Testimony in support of this measure was received from the State Insurance Commissioner, Executive Office on Aging (EOA), Hawaii State Commission on the Status of Women, Hawaii's First Lady, Honolulu Department of Community Services, Healthcare Association of Hawaii, Hawaii Alliance for Retired Persons, Policy Advisory Board for Elder Affairs, Hawaii Long Term Care Association, Kokua Council, Faith Action for Community Equity, First Unitarian Church of Honolulu, and one private citizen. Testimony in opposition was received from the Department of Taxation, Hawaii Insurance Association of America, Association of Insurance and Financial Advisors, Chamber of Commerce of Hawaii, and two private citizens. Comments were received from Office of Information Practices, Tax Foundation of Hawaii, Coalition for Affordable Long Term Care, and four private citizens.

This measure is a product of the Joint Legislative Committee on Long-Term Care, formed pursuant to S.C.R. 23, C.D. 1, 2001, to develop and implement a plan for a dedicated source of revenue to provide a state—funded long—term care services system.

Your Committee finds that 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, your Committee is determined not to allow fortuity and timing to sabotage a plan that has been in the making for at least ten years. Even during sunnier economic days, the time will never be "right" for a state-sponsored long-term care financing scheme. Particularly in view of the fact that this measure is entirely self-financing and requires no outlay of general fund revenues, your Committee requests the legislature to take the bold step of passing this measure as a legacy to posterity.

After much deliberation over nearly a year of study, and after consulting with long—term care providers, consumers, experts, and actuaries, the joint committee determined that a financially viable system would require a mandatory contribution from the public. While the joint committee was reluctant to denominate this contribution as a "tax", your Committee believes that the contribution is in effect a long—term care income tax.

Upon recommendation of the joint committee, the amount of the tax, without regard to income level, is $10 per month per person who receives a paycheck, either as an employee without regard to number of hours worked, or self—employed. Therefore, collection of the long—term care income tax would be identical to collection of state income taxes, which is by withholding or self-employed tax payments.

Your Committee believes that $10 a month, with an annual increase of five per cent for the first five years, is a modest amount of money that will eventually pay $70 per day or more for a year of long-term care services, which totals $25,550 or more in benefits. The concept is not unlike life insurance.

Every dollar collected under this tax will be paid out in the future by way of benefit payments. In this sense, the word "tax" is used as a matter of administrative expediency for collection purposes. 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.

This measure is the culmination of an effort begun in the late 1980’s with the EOA and its Hawaii Long Term Care Financing Project. The effort continued over the years in various administrative and legislative efforts, including the Family Hope Plan, several actuarial studies, several appropriations for studies, and two sequential and separate joint legislative committees. Everything on this subject that had to be studied and considered was done several times over. Your Committee is confident that this measure represents the best product for Hawaii, and also represents the first such financing plan in the country. The best long-term care actuaries in the country have priced and approved this plan.

Your Committee has amended this measure by replacing its contents with the contents of S.B. No. 2495, a similar measure which provides for a tax rather than a premium and designates the Department of Taxation to collect the tax. Your Committee has further amended the measure on the recommendation of the EOA by:

(1) Substituting the blue ribbon panel with a board of trustees;

(2) Commencing the first benefit payments on July 1, 2005;

(3) Collecting the tax beginning each year after December 31, 2002, and changing the years of the graduated tax accordingly;

(4) Requiring the tax to be withheld from retirement benefits for those already retired;

(5) Requiring a detailed annual actuarial report;

(6) Placing the board of trustees within the Department of Budget and Finance for administrative purposes;

(7) Specifying the terms, composition, and appointment by the Governor of the board of trustees;

(8) Providing for the fiduciary and other obligations of the board of trustees; and

(9) Requiring the board of trustees to submit an annual report to the legislature with specified information on the finances of the fund.

As affirmed by the record of votes of the members of your Committee on Health and Human Services that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2416, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2416, S.D. 1, and be referred to the Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Health and Human Services,

____________________________

DAVID MATSUURA, Chair