GOP’s tax plan will hurt seniors, fuel public health spending

  • The "nursing home tax deduction" in GOP's tax reformers' sights is a critical tax break for seniors who spend more than 10 percent of income on long-term care costs.
  • The Tax Cut and Jobs Act would eliminate the deduction, reducing seniors' ability to fund their own long-term care and driving them into Medicaid's arms.
  • Other means of "private pay" for long-term care should also be encouraged, says insurance expert.

While Realtors, homebuilders and small-business owners have already lined up against the tax reform that Republicans have proposed, one area has gotten very little attention that could affect an even larger constituency: The Tax Cut and Jobs Act would eliminate the tax deduction for medical expenses.

Senior couple retirement
Image Source | Getty Images

Although a relatively small percentage of the population claim this deduction, it is especially beneficial for seniors in retirement who are paying for long-term care costs not covered by Medicare or private insurance. This "nursing home tax deduction" in current Internal Revenue Service rules provides a critical tax break for seniors who spend more than 10 percent of their income on long-term care costs.

Because of the high cost of long-term care, this group is more likely than almost any other group to hit that 10 percent threshold that allows them to qualify for a tax break.

The irony of this proposed measure is that it could actually increase the number of seniors using taxpayer-funded coverage to pay for long-term care through Medicaid. Instead of incentivizing personal financial responsibility for one's own care, this measure could actually increase public expenditures for health care.

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And it is facing a formidable group of baby boomers who are becoming a "silver tsunami" of users for long-term care services. They are well organized to fight measures that will impact their ability to pay for needed supports and services.

A more sensible approach to tax reform is to look for ways to use the tax code to create incentives for people to take personal responsibility whenever possible over relying on taxpayer-funded government programs such as Medicaid.

Instead of penalizing seniors for paying their own way in a nursing home by taking away this tax deduction, this important deduction should be expanded upon so even more seniors would want to use it instead of relying on Medicaid.

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Other means of "private pay" for long-term care should also be encouraged through tax incentives, such as purchasing long-term care insurance, exchanging life insurance policy death benefits for living benefits, and the use of Health Savings Accounts and Senior Health Planning Accounts.

These options are all better alternatives instead of Medicaid for funding long-term care.

Why? Because they save taxpayers more money than seniors could ever generate in revenue if the tax break were to be eliminated. Controlling health-care costs through incentives is a much better approach to tax reform — because a dollar saved is worth much more than a few pennies harshly earned.

— By Chris Orestis, executive vice president of GWG Life and author of "Help on the Way" and "A Survival Guide to Aging."

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