Issue link: http://clhia.uberflip.com/i/206673
One existing savings vehicle model that the CLHIA believes could be appropriate in this regard would be some form of Registered Education Savings Plan (RESP)-type product, but dedicated for long-term care costs. In such a product, Canadians would be permitted to contribute a certain amount of money each year to save towards long-term care costs. Similar to RESPs, contributions by Canadians would be supported by grants from the Government of Canada. An RESP-type vehicle offers a number of advantages over alternative savings vehicles. All investment income generated in this type of savings vehicle is tax sheltered as long as it remains in the plan. Moreover, when the money is withdrawn and used for its intended purpose, the plan earnings and government contributions generally are taxed at a lower rate than they otherwise would be. Finally, because the government provides grants which help lever the individuals contributions, such a product is attractive for modest income earners for whom any tax deferral benefits are modest relative to those in higher income tax brackets. Alternatively, governments could look at ways to subsidize the purchase of long-term care insurance as is done in the U.S. 19, such as providing a tax credit. Long-term care insurance is a supplemental coverage that may become payable when an individual is struck with a debilitating, severe or chronic illness. There are generally two types of long-term care insurance. One reimburses the insured for eligible expenses received on a given day, up to a pre-set maximum. The other is the income-style plan, which offers a pre-set monthly payment amount. Typically, benefits are payable when an individual can no longer perform at least two essential activities of daily living (e.g., bathing and dressing), or requires daily supervision because of a cognitive impairment. As of 2010, there were only about 385,000 Canadians with long-term care coverage and the life and health insurance industry paid out total annual benefits of $12 million. It is clear that the long-term care insurance market in Canada is underdeveloped. This differs materially from the situation in the U.S., where the long-term care market is much more developed and consumers are more proactive in seeking coverage. There are over 10 million Americans that are protected by long-term care insurance. 20 The difference between the U.S. and Canadian markets is likely due to several factors. For instance, Canadians generally do not understand that there are limited government programs to support longterm care, many of which are income tested. Therefore, in many cases governments will not cover the long-term care needs of Canadians. In addition, Canadians are generally sheltered from the costs of health care and, as a result, they are surprised at the price of long-term care solutions. Taken together, this impacts Canadians' demand for such coverage. The CLHIA believes that governments have an important role to play in both educating Canadians about the need to save for their long-term care needs as well as incenting such activity. This can be done by providing tax or other financial incentives to signal to the public their responsibilities for funding their own long-term care needs as well as helping them to save. 19 American Association of Long-term Care Insurance, http://www.aaltci.org/long-term-care-insurance/learningcenter/tax-for-business.php. 20 American Association for Long-term Care Insurance. Long-term Care Insurance Information from America's Longterm Care Insurance Experts (http://www.aaltci.org). 8