Evaluating Three Models for Compensating Family Caregivers Richard L. Kaplan University of Illinois College of Law International Long-Term Care Policy Network Conference September 5, 2016

Order of Presentation I. Context of Informal Caregiving: 80% of all long-term care in U.S. II. Cost to Caregivers III. Model 1: Social Insurance IV. Model 2: Tax Incentives V. Model 3: Private Contracts

Profile of Family Caregivers Female = 60% Average age = 50.3 years Average care provided = 24.1 hours/week Average caregiving period = 3.7 years Have minor child/grandchild = 28% Employed = 59% Source: National Alliance for Caregiving, Caregivers of Older Adults: A Focused Look at Those Caring for Someone Age 50+ (June 2015)

Cost to Family Caregivers Reduction of formal employment Fewer years of Social Security participation Possible ineligibility for benefits Lower retirement benefit payments Possible ineligibility for Medicare No contribution to retirement savings plans Emotional stress Physical injuries

Model #1: Social Insurance Publicly administered and funded Mandatory enrollment → universal applicability Indirect, or no, means-testing of benefits Classic example: Medicare Recent U.S. effort: Community Living Assistance Services and Supports (CLASS), enacted in the Affordable Care Act

The CLASS Program Funds used “to maintain . . . independence at home or in another residential setting of their choice in the community” Payments to caregivers, including relatives Voluntary enrollment; five years required before benefits available Programmatic self-sufficiency required Never implemented; repealed in 2013

“Deemed” Wage Credits 2014 proposal to “deem” Social Security wage credits for caregivers (H.R. 5024) Caregivers must provide at least 80 hours of care per month. Caregivers must be younger than age 66. Amount of “deemed” wages = 50% of average wages credited that month Maximum of 60 months of deemed credits

Model #2: Tax Incentives Medical expense deduction for amounts paid to caregivers Payments to relatives qualify only if they are licensed professionals Proposals for tax credits require that the caregiver live in the same abode as the care recipient Stipulated amount vs. based on out-of-pocket expenses (capped)

Model #3: Family Caregiver Agreement Available presently Sets forth caregiver’s responsibilities and benefits, including current pay Versus testamentary provision Contemporaneous recognition by family of caregiver’s importance Issues of contractual capacity and caregiver compliance in an unmonitored setting

Some Key Contingencies Caregiver pay increases and benefits Caregiver becomes ill or disabled Caregiver gets married or relocates Caregiver dies Needs of care recipient change Care recipient requires special equipment or outside services Care recipient requires institutional care

Impact on Caregiver Taxable income to caregiver vs. gifts are tax-free (inheritances also) Enhancement of Social Security benefits Possible entitlement to Medicare benefits Ability to make retirement plan contributions Timely payment vs. possible will contests and protracted litigation

Impact on Medicaid Benefits Eligibility for benefits is restricted by assets: unmarried persons may have no more than $2,000 of all assets other than a home. Penalty for “uncompensated” transfers made during the preceding 60 months: amount transferred divided by private pay rate = months not eligible for benefits Caregiver payments are compensated transfers, so there is no penalty.