STAND. COM. REP. NO.1194

Honolulu, Hawaii

, 2003

RE: H.B. No. 1616

H.D. 1

S.D. 1

 

 

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 H.B. No. 1616, H.D. 1, entitled:

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

beg leave to report as follows:

The purpose of this measure is to establish a long-term care income tax to implement the long-term care financing program established under chapter 346C, Hawaii Revised Statutes.

Your Committee reviewed the contents of this and similar measures and decided on preparing a proposed draft largely based on this measure, which was distributed to the public prior to the hearing. Therefore, the hearing and testimony received was on the proposed draft of this measure.

Testimony in support of the proposed draft was received from the Hawaii State Commission on the Status of Women, Hawaii Long Term Care Association, Kokua Council, AARP Hawaii, ILWU Local 142, Policy Advisory Board of Elder Affairs, Hawaii Alliance for Retired Americans, Healthcare Association of Hawaii, Coalition for Affordable Long Term Care, National Association of Social Workers, Faith Action for Community Equity, Hawaii State Teachers Association, Hawaii State Teachers Association – Retired, Child & Family Service, Temporary Board of Trustees, Long Term Care Financing Act, and eight individuals. Testimony opposing the proposed draft of this measure was received from the Hawaii Medical Association, Hawaii Association of Realtors, Hawaii Bankers Association, Health Insurance Association of America, Chamber of Commerce of Hawaii, Association of Insurance and Financial Advisors, and one individual.

The Department of Taxation, Office of Information Practices, and Tax Foundation of Hawaii submitted comments on the proposed draft of this measure.

Act 245, Session Laws of Hawaii 2002 (Act 245), enacted chapter 346C, Hawaii Revised Statutes (HRS), which established the long-term care financing program to provide a universal and affordable system of providing long-term care. Act 245 also provided for the appointment of a temporary board of trustees to formulate a tax structure to implement the program and to report accordingly to the Legislature. Pursuant thereto, the temporary board of trustees filed a report with the Legislature in November 2002, entitled "The Hawaii Long-Term Care Financing Program." This measure, as introduced, is based on the recommendations of that report.

Your Committees find that the issues surrounding long-term care will continue to challenge our State. The Executive Office on Aging estimates that only six per cent of Hawaii residents have long-term care insurance. According to the University of Hawaii's Department of Political Science, as reported in The Honolulu Advertiser (March 10, 2003), nearly a quarter of Hawaii residents will be 65 years of age or older by 2020, with the first wave of so-called baby boomers turning 65 in 2011. Medicaid pays for long-term care for about three quarters of Hawaii residents. The University of Hawaii concludes that if nothing is done to shift the burden away from government support, the Medicaid program (funded by about half from state funds) will drain money from other worthy programs. According to the National Association of Insurance Commissioners, Hawaii had 28,160 people covered by private long-term care insurance policies in 2001, at an average cost of $3,236 per year.

This measure is intended to supplement, not supplant, the coverage provided by long-term care insurance. Coverage under this measure is very basic and would meet seventy-five per cent of people's needs. Furthermore, the tax would hold down the cost of long-term care, making the tax plan cost-effective over a period of time.

Your Committees believe that the tax in this measure is a necessary solution to a problem that has been growing over time with no end in sight. Although your Committees are concerned that the tax may be regressive, your Committees believe that the tax is extremely modest and is in the best interest of the State.

Your Committees find that the alternatives to a tax to finance a long-term care program include Medicaid, Medicare, long-term care insurance, and personal funds. However, none of these alternatives are feasible for the vast majority of people. The Legislature has grappled with this issue since 1990, and the conclusions all point to an income tax.

The Department of Taxation commented on the necessity of obtaining a ruling from the Internal Revenue Service to ensure that payments of the long-term care income tax is deductible under Internal Revenue Code section 213. The Department of Taxation expressed that such a ruling will be pursued upon enactment of the long-term care income tax. Your Committees request that the Committee on Ways and Means continue to work with the Department of Taxation in ensuring that the long-term care income tax complies with relevant federal laws.

Your Committees have amended this measure by:

(1) Adding a purpose section to the new part in chapter 235, HRS;

(2) Clarifying that the tax is in addition to the regular withholding of income taxes;

(3) Providing that the tax shall not be imposed on a low-income taxpayer who is taxed pursuant to section 235-51(c) or (d), HRS, if the taxpayer's gross income is less than $10,000, or a low-income taxpayer who is taxed pursuant to section 235-51(a) or (b), HRS, if the taxpayer's gross income is less than $16,000;

(4) Deleting the provision requiring the filing of a long-term care premium tax form by a resident age sixty-five or older who is not required to file a return, because existing tax law covers the situation;

(5) Deleting provisions regarding tax payment delinquencies as those matters are appropriately handled by the Department of Taxation;

(6) Deleting provisions relating to restatements of prior federal adjusted gross income;

(7) Adding new sections relating to portability, vesting, and defined benefit;

(8) Transferring language relating to the actuarial report from a new section in chapter 235, HRS, to a new section in chapter 346C, HRS, where it more properly belongs, and correcting internal references to this section;

(9) Adding to chapter 235, HRS, two new sections relating to income tax exclusions for the receipt of defined benefits and to a long-term care tax credit;

(10) Providing that the long-term care tax credit may be claimed in taxable years beginning after December 31, 2005, rather than December 31, 2003, and ending before January 1, 2009;

(11) Adding provisions to exempt the long-term care benefits fund from transfers for central service and administrative expenses;

(12) Clarifying in section 346C-2, HRS, that this measure implements chapter 346C, HRS;

(13) Deleting the requirement in section 346C-5, HRS, that the entity selected to administer the program be a licensed insurer, because the program funded by the income tax is not an insurance product;

(14) Requiring payment of the long-term care income tax until the individual begins receiving benefits, if the individual is vested;

(15) Requiring the board of trustees to establish a plan for voluntary contributions for persons who do not file state income tax returns because they only receive pension income, and making a conforming amendment;

(16) Making appropriations to the Department of Taxation and the Department of Budget and Finance for start-up costs;

(17) Requiring that the long-term care benefits fund reimburse the general fund for start-up costs; and

(18) Changing the effective date to July 1, 2005, along with other appropriate technical enactment language.

Your Committees also amended the measure by inserting modified contents of S.B. No. 1399, S.D. 2, relating to a long-term care tax credit, which has crossed over to the House for consideration. Your Committees have modified the credit by providing for a $10-per-month credit up to $120 per year for five years, and a $15-per-month credit up to $180 per year for the next five years, for persons who both pay the tax and purchase a long-term care insurance policy. However, your Committees remain open to modification of this proposal and ultimately defer to the Committee on Ways and Means on this issue.

Your Committees further amended this measure by extending the duration of service by the temporary board of trustees of the Hawaii long-term care financing program from June 30, 2003, to the time when the permanent board is appointed pursuant to section 346C-3, HRS.

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 H.B. No. 1616, H.D. 1, as amended herein, and recommend that it pass Second Reading in the form attached hereto as H.B. No. 1616, H.D. 1, S.D. 1, and be referred to the Committee on Ways and Means.

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

____________________________

SUZANNE CHUN OAKLAND, Chair

____________________________

ROSALYN H. BAKER, Chair