Earlier this month, Senator Blanche Lincoln (D-AR) and Senator Gordon Smith (R-OR) introduced before Congress the Long-Term Care Trust Account Act of 2007 (S.504). The proposed legislation would allow Americans to contribute $5000 per year to private accounts in order to pay for long-term care insurance or long-term care costs. The contributor would then be eligible for a 10% tax credit on their contribution. Interest accrued would be tax free, similar to interest accrued on Roth IRA’s. Individuals would also be able to make contributions to the LTC accounts of others such as parents or spouses.

Senator Lincoln maintained that, “As Americans, we must commit ourselves to planning for our own future…it is critical that [Congress] create incentives for Americans to invest in their long-term care security.” Senator Smith points out that, “We are an aging nation…with the baby boomers rapidly retiring, the need for long-term care planning is becoming even more critical.” According to the Centers for Medicare and Medicaid Services, the number of Americans most in need of long-term care (those 85+) is expected to more than triple by 2040.

Not surprisingly, The American Health Care Association, the National Center for Assisted Living and The Association of Health Insurance Advisors all have expressed strong support for the legislation, which has now moved into the Senate Finance Committee for review. Bruce Yarwood, President and CEO of AHCA/NCAL reasoned, “The more our nation can do through tax and fiscal policy to alleviate pressure on the Medicaid program, the more likely we are to assure that Medicaid will be available…to protect those Americans who most need this vital safety net program.” AHIA President Lawrence E. Lounds lauded the proposal saying that it represented, “meaningful tax relief and is an important incentive for Americans to take greater personal responsibility for their long-term care needs.”

The theme of greater personal responsibility coupled with enthusiasm for traditional tax code creativity strongly echo President Bush’s State of the Union speech last month. While the merits of S.504 will surely be debated, it seems doubtful that this legislation proposing private healthcare accounts has a chance of passing quickly.