SB2416 SD1

Report Title:

Long-Term Care; Mandatory Tax Assessment

 

Description:

Enacts the Hawaii long-term care financing Act; creates a mandatory assessment system to collect taxes from employee paychecks; establishes an initial premium amount of $10 per month and an initial benefit payment of $70 per day for 365 days; creates the Hawaii long-term care benefits fund to hold the premiums and to pay benefits. (SD1)

 

THE SENATE	S.B. NO.	2416
TWENTY-FIRST LEGISLATURE, 2002		S.D. 1
STATE OF HAWAII

A BILL FOR AN ACT

 

RELATING TO the hawaii long-term CARE financing act.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The Congressional Budget Office expects the national expenditures for long-term care services for the elderly (people age sixty-five and older) to grow through the year 2040 ("Projections of Expenditures for Long-Term Care Services for the Elderly", March 1999, Congressional Budget Office). The main reason for that growth is that the U.S. population is aging, and elderly people receive the most long-term care services because they are more likely than younger people to have some kind of functional limitation. Many baby boomers will begin to reach age sixty-five in 2011. In addition, more elderly people will reach advanced ages (eighty-five and older) than in the past because of declining mortality rates. These trends will cause the proportion of the population that is elderly, which was just under thirteen per cent in 1995, to rise to twenty per cent in 2040. More importantly, the population over age eighty-five, the segment most likely to require long-term care, will grow over three times its current size by 2040.

In Hawaii, according to a report by the Hawaii Health Information Corporation and the HMSA Foundation ("Health Trends in Hawaii", Fifth Ed., 2001, hereinafter referred to as the "HMSA report"), the State's population growth was greatest among the elderly between 1990 and 1999. The number of residents aged sixty-five to seventy-four increased thirteen per cent (one per cent was the national average), while the number of those aged seventy-five and older increased by sixty-two per cent (twenty-four per cent was the national average). On a county level, all counties experienced significant growth in their elderly populations, with Honolulu experiencing the greatest increase from five per cent in 1970 to fourteen per cent in 1999. Overall since statehood, the proportion of elderly to total population has increased from roughly five per cent in 1960 to fourteen per cent in 1999, when the proportion of elderly in Hawaii's population just exceeded that of the U.S. population.

As the baby boom generation ages, these figures are projected to increase and cause a host of social and economic demands. Aging brings concomitant chronic health diseases such as cancer, cardiovascular disease, and stroke, all of which necessitate intense daily care in the latter years of life.

The legislature finds that people in Hawaii are simply living longer, due in large measure to the State's excellent health care. However, the irony would be if the State could not also care for the elderly who have benefited from the enhanced health care in their younger years. The implication, according to the HMSA report, is that "[t]he increasing proportion of elderly in Hawaii's population signals the need to monitor the ability of health care resources to meet the elderly's greater need for services, including the distribution of those services to the Neighbor Islands." Furthermore, according to the HMSA report, "[t]he proportion of the population deemed 'work age' (19-65) is decreasing relative to the elderly, raising questions about the social burdens this decreasing cohort must bear." These factors pose important questions for health care and public policy.

The legislature further finds that the whole dynamic of the extended family in Hawaii will radically change to place impossible financial and social hardship on Hawaii families. As people age or become disabled, they need services to help them with activities of daily living. The approach to helping Hawaii's elderly and disabled should be prompted by compassion and caring, although the problem is inextricably one of economics.

The legislature further finds that because increasing numbers of Hawaii's residents will need long-term care services, there is a compelling need to create an affordable method of financing those services. What Hawaii needs is a method of financing that is affordable and suitable for the majority of residents. Current methods of financing long-term care in Hawaii involve predominantly Medicaid, private insurance, and personal assets. Medicaid eligibility is qualified by income limits. Private insurance is not widespread, and most people do not have sufficient personal assets. Contrary to popular belief, Medicare pays for only the initial hospitalization stay (acute care) of a patient for a limited number of days.

This Act is a product of the joint special committee of the Legislature, formed pursuant to Senate Concurrent Resolution No. 23, C.D. 1, 2001, to develop and implement a plan for a dedicated source of revenue to support the long-term care needs of all citizens in the State regardless of income.

The purpose of this Act is to create a mandatory tax assessment system that is reasonable, affordable, and equitable, to pay for long-term care expenses.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new grouping to part III to be appropriately designated and to read as follows:

"HAWAII LONG-TERM CARE FINANCING PROGRAM

§235-A Purpose. Sections 235-A to 235-J establishes a mandatory income tax assessment program to provide an equitable and affordable system of long-term care. Benefits under this program are intended to be primary to other long-term care benefits from private insurance and Medicaid. This program promotes individual choice and discretion in selecting and paying for long-term care services.

§235-B Definitions. As used in sections 235-A to 235-J:

"Activities of daily living" means at least bathing, continence, dressing, eating, toileting, and transferring.

"Benefit payment" means a payment to a recipient under section 235-F.

"Board of trustees" means the board of trustees charged with the general administration of this program under section 235-J.

"Long-term care services" means a broad range of supportive services needed by individuals who are age twenty-five or older with physical or mental impairments and have lost or never acquired the ability to function independently.

Long-term care services include:

(1) Home health care services, as defined in section 431:10H-201;

(2) Adult day care, as defined in section 431:10H-201;

(3) Adult residential care homes, as defined in section 321-15.1;

(4) Extended care adult residential care homes, as defined in section 323D-2;

(5) Hospices, as defined in section 321-11;

(6) Personal care, as defined in section 431:10H-201;

(7) Respite care, as defined in section 333F-1;

(8) Care at home by a relative of the caregiver or by another individual to assist with the activities of daily living; and

(9) Any product and implement used in the care of the recipient of a benefit payment in conjunction with any long-term care service.

"Program" means the long-term care program set forth in sections 235-A to 235-J.

§235-C Administration of the program; expenses. (a) The program shall be administered by the board of trustees, except where the department of taxation is required to assess, levy, and collect the income tax imposed under section 235-H.

(b) Costs for the administration of the program shall be paid from moneys in the Hawaii long-term care benefits fund as follows:

(1) Up to four per cent of the total monthly deposit into the fund to cover general administrative expenses; and

(2) Up to four per cent of the total monthly amount of claims paid out from the fund may be used to pay for administrative expenses related to claims processing.

§235-D Hawaii long-term care benefits fund. (a) There is established in the state treasury the Hawaii long-term care benefits fund, into which shall be deposited moneys collected as long-term care income taxes pursuant to section 235-H. The department of budget and finance shall cause the moneys in the fund to be deposited in federally insured financial institutions in Hawaii, so as to preserve the balance and ensure a reasonable return under prevailing interest rates. Investments of the moneys may be made subject to section 235-J.

(b) Expenditures from the fund shall be made solely for the purpose of making benefit payments, and the cost of administration under section 235-C(b).

(c) Notwithstanding any law to the contrary, moneys in the fund shall not be transferred to another fund at any time nor for any purpose.

(d) The auditor shall conduct an audit of the Hawaii long-term care benefits fund annually for the first three years from the date the fund first receives deposits, and every three years thereafter; provided that the auditor may modify the time periods after the first three years as appropriate to the circumstances. The auditor shall publish a report of the results of every audit, including any recommendations.

§235-E Qualified long-term care services. (a) To be eligible for a benefit payment for long-term care services under the program, a fully or partially vested individual must have a written certification from a physician licensed under chapter 453 or 460, or an advanced practice registered nurse recognized under section 457-8.5, assigned by the board of trustees certifying that the vested individual needs one or more long-term care services, for the period of time during which the individual receives the benefits under the program. To be eligible, the vested individual shall:

(1) Need assistance with two or more activities of daily living; or

(2) Be afflicted with Alzheimer's disease or dementia.

(b) For purposes of subsection (a), the written certification shall be subject to approval by the board of trustees, and shall specify that the individual:

(1) Is unable to perform, without substantial assistance from another individual, at least two of six activities of daily living for a period of at least ninety days due to a loss of functional capacity; or

(2) Requires substantial supervision to protect the individual from threats to health and safety to self or others due to severe cognitive impairment.

§235-F Defined benefit. (a) Beginning July 1, 2005, benefit payments for long-term care services shall commence. The defined benefit payment shall be $70 a day up to a cumulative period of three hundred sixty-five days; provided that the daily benefit payment may be increased from time to time by the board of trustees in accordance with the actuarial report under section 235-I.

(b) Benefit payments shall begin after the thirtieth day following the date of the approval of the written certification under section 235-E and shall be made to the recipient of a long-term care service, or to the legal representative of the recipient in the name of the recipient, as a reimbursement for long-term care service expenditures. The amount of benefit payments shall not be qualified by the income of the recipient.

(c) Benefit payments under this program shall be primary to private insurance and Medicaid benefits. An individual shall not receive benefit payments while the individual is receiving Medicare benefits for long-term care; provided that if Medicare benefits are exhausted, the individual shall be required to qualify under section 235-E.

(d) Benefits payments shall not be subject to state income tax.

§235-G Vesting to receive benefit payments. (a) Any individual who has paid the long-term care income tax under section 235-H for ten years, shall be fully vested to receive benefit payments, but shall continue to be subject to the income tax under section 235-H.

(b) An individual shall earn one-tenth of the benefit payment amount under section 235-F for each consecutive twelve-month period that the individual pays the income tax under section 235-H. An individual shall be allowed twelve consecutive months of non-payment of the income tax without penalty; provided that after the twelve consecutive months of non-payment, the individual shall forfeit one-tenth of the defined benefit amount for each year of non-payment.

(c) If an individual dies before July 1, 2005, the estate or heirs, as appropriate, of that individual may make a claim for reimbursement of the income taxes paid under section 235-H by the individual.

§235-H Long-term care income tax imposed; rates. (a) For each year beginning after December 31, 2002, there is hereby levied and shall be assessed and collected a mandatory long-term care income tax, to be collected by the department of taxation, in the amount of $10 a month, from each individual who is:

(1) Age twenty-five to ninety-eight; and

(2) A regular employee, as defined in section 393-3 or a self-employed individual;

provided that the tax imposed by this section shall not be a deduction under this chapter.

(b) After December 31, 2003, the income tax under subsection (a) shall be increased by five per cent annually, as follows:

(1) For taxable year 2004, $10.50 a month;

(2) For taxable year 2005, $11.03 a month;

(3) For taxable year 2006, $11.58 a month;

(4) For taxable year 2007, $12.16 a month; and

(5) For taxable year 2008, $12.77 a month.

Thereafter, the tax may be increased upon request of the board of trustees to the legislature in accordance with the actuarial report under section 235-I.

(c) The mandatory long-term care income tax shall be withheld by the employer from the first salary or wage payment of each month, and the employer shall forward the income tax to the department of taxation. Self-employed individuals shall submit the income tax amount directly to the department of taxation in a manner determined by the department.

(d) If an individual receives salary or wages from more than one employer, the individual shall elect one of the employers to withhold the income tax. The election shall be made through the use of the individual's social security number, or other identifying mechanism as specified by the department of taxation.

(e) If the individual receives retirement benefits, the entity paying the retirement benefits shall withhold and pay the tax to the department of taxation, in a manner determined by the department.

(f) Voluntary payments of the income tax shall not be allowed.

(g) The department of taxation, shall develop a system to identify and tally the income taxes collected from each individual on a current basis.

(h) The department of taxation shall adopt rules and prescribe appropriate forms to facilitate the withholding and payment procedures to implement the income tax assessment under this section.

§235-I Actuarial report. (a) The board of trustees shall cause to be prepared an annual actuarial report and actuarial opinion, as defined by the Actuarial Standards Board of the American Academy of Actuaries. The report and opinion shall be prepared by a member of the American Academy of Actuaries who is a fellow of the Society of Actuaries, certifying that the program is in actuarial balance. Costs of the actuarial report shall be deemed an administrative expense under section 235-C(b)(1).

(b) The actuarial report shall contain a statement by the actuary certifying that the techniques and methods used are generally accepted within the actuarial profession and that the assumptions and cost estimates used are reasonable. The report shall include:

(1) A statement of the assets and disbursements from the fund during the preceding fiscal year;

(2) An estimate of the expected future income to and disbursements to be made from the fund during each of the next ensuring ten fiscal years;

(3) A projection of the tax rates necessary to keep the trust funds actuarially sound over the short-range and long-range future periods;

(4) A statement of actuarial assumptions and methods used to determine costs and a detailed explanation of any change in actuarial assumptions or methods;

(5) The current and projected number of participants and beneficiaries and the current and projected paid-in taxes, benefit payments, current and permanent benefit credits earned, and the like, aggregated by current and past Hawaii taxpayer status and age;

(6) The current value of accumulated assets of the system and the value of assets used by the actuary in any computation of the amount of required taxes; and

(7) The results of short-range and long-range actuarial sensitivity analyses.

(c) All work products, papers, documents, and data used or prepared by the actuary in preparing the actuarial report shall be public documents within the meaning of chapter 92F.

§235-J General administration of the program; board of trustees. (a) There is established within the department of budget and finance for administrative purposes the board of trustees of the Hawaii long-term care benefits fund. The general administration for the proper operation of the Hawaii long-term care financing program and the Hawaii long-term care benefits fund is vested in the board of trustees; subject to the administrative control vested in the department of budget and finance by sections 26-8 and 26-35. The board of trustees shall have and maintain a fiduciary obligation for the Hawaii long-term care benefits fund.

(b) The board of trustees shall consist of five members, to be appointed by the governor as provided in section 26-34; provided that the terms of members shall be six years; provided further that the initial appointments may be staggered in accordance with section 26-34(a).

(c) The trustees shall have experience in accounting, business, finance, law, or other similar fields, and experience equivalent to five years as an officer or manager of a viable business, community, or organization involved with insurance management, portfolio management, health care management, or similar field. The composition of the board of trustees shall represent a diversity of relevant experience.

(d) The trustees shall elect a chairperson from among themselves. The trustees shall serve without compensation but shall be reimbursed for all expenses, including travel and per diem expenses, necessary for the performance of their duties.

§235-K Fiduciary and other obligations. (a) The trustees shall:

(1) Discharge their duties solely in the best interest of the system;

(2) Not knowingly participate in or undertake to conceal an act or omission of a trustee, when the act or omission is known to be a breach of fiduciary responsibility; or fail to discharge specific fiduciary responsibilities in a manner that enables another trustee to commit a breach; or having knowledge of a breach, fail to take whatever action that is reasonable and appropriate under the circumstances to remedy the breach; and

(3) Act with the care, skill, prudence, and diligence under the circumstances then prevailing, that a prudent trustee, acting in a like capacity and familiar with similar matters would use in conducting an enterprise of similar character and purpose.

(b) With respect to investments, with the advice of the state director of finance to ensure investment soundness, the board of trustees shall invest moneys in the Hawaii long-term care benefits fund solely in:

(1) Obligations of any of the following classes:

(A) Obligations issued or guaranteed as to principal and interest by the United States or by any state thereof or by any municipal or political subdivision or school district of any of the foregoing; provided that the principal of and interest on such obligations are payable in currency of the United States, or sovereign debt instruments issued by agencies of, or guaranteed by foreign governments;

(B) Revenue bonds, whether or not permitted by any other provision hereof, of the State or any political subdivision thereof, including the board of water supply of the city and county of Honolulu, and street or improvement district bonds of any district or project in the State; and

(C) Obligations issued or guaranteed by any federal home loan bank including consolidated federal home loan bank obligations, the Home Owner's Loan Corporation, the Federal National Mortgage Association, or the Small Business Administration;

(2) Obligations eligible by law for purchase in the open market by federal reserve banks;

(3) Securities and futures contracts in which in the informed opinion of the board of trustees it is prudent to invest funds of the system, including currency, interest rate, bond, and stock index futures contracts and options on such contracts to hedge against anticipated changes in currencies, interest rates, and bond and stock prices that might otherwise have an adverse effect upon the value of the system's securities portfolios; covered put and call options on securities; and stock; whether or not the securities, stock, futures contracts, or options on futures are expressly authorized by or qualify under the foregoing paragraphs, and notwithstanding any limitation of any of the foregoing paragraphs; and

(4) Any other investments deemed secure on the advice of the state director of finance.

(c) Submit to the legislature not later than January 1 of every year, an annual report for the preceding fiscal year. The annual report shall include, but not be limited to, information concerning:

(1) Investments, including the types and amounts;

(2) Current balance in the fund;

(3) Projected liabilities for the upcoming year;

(4) Current reserve requirements to meet the projected liabilities for the upcoming year;

(5) Amount of claims paid and taxes received in the year immediately preceding the issuance of the report; and

(6) Any other useful information to determine the fiscal soundness of the fund.

(d) Maintain proper books of accounts and records of the administration of the system.

(e) The board of trustees may contract with a qualified entity to administer the Hawaii long-term care financing program or to process claims for benefit payments, or both; provided that the entity shall be appropriately licensed under chapter 431. Selection of the entity shall be subject to chapter 103D; provided that the state insurance commissioner shall advise the board of trustees in selection of the entity.

(f) In lieu of subsection (e), the board of trustees may contract with a qualified entity to assume the risk of underwriting loss under the Hawaii long-term care financing program at a capitated rate of payment to the entity. The entity shall be appropriately licensed under chapter 431 and adequately capitalized. Selection of the entity shall be subject to chapter 103D; provided that the state insurance commissioner shall advise the board of trustees in the selection of the entity. An entity selected under this subsection shall perform the functions under subsection (e), in addition to assuming the risk."

SECTION 3. The Hawaii long-term care benefits fund shall reimburse the general fund, after a period of five years from July 1, 2002, for the amount of any legislative appropriation for start-up costs of the fund and for the administration of this Act, whether the appropriation is made in this Act or subsequent acts.

SECTION 4. There is appropriated out of the general revenues of the State of Hawaii the sum of $         , or so much thereof as may be necessary for fiscal year 2002-2003, for start-up costs to collect the long-term care income tax.

The sum appropriated shall be expended by the department of taxation for the purposes of this Act.

SECTION 5. In codifying the new sections added by this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections of this Act.

SECTION 6. If any provision of this Act is in conflict with federal law, this Act shall be interpreted to be congruent with the federal law.

SECTION 7. This Act shall take effect upon its approval; provided further that section 4 shall take effect on July 1, 2002.