Richard Kaplan | University of Illinois College of Law
Despite the proliferation of new institutional arrangements for providing long-term care to older adults, most such care continues to be provided informally, usually for no monetary compensation, by members of an elder’s extended family. In the United States, for example, estimates of long-term care provided by family members reach 80 percent and in less wealthy countries, this proportion is undoubtedly higher.
Nonetheless, the ethical and religious imperatives that compel such altruistic caregiving face competing concerns as countries increasingly move toward defined contribution retirement plans and away from broadly based social insurance schemes. As only one example, caregivers in such countries cannot use many tax-sheltered retirement saving mechanisms that require receipt of earned income and therefore seriously jeopardize their future financial security.
Methods: This paper employs legal and economic analysis of three distinct mechanisms to compensate family caregivers and thereby mitigate the extent of their financial sacrifice. The first mechanism is publicly funded social insurance that pays informal caregivers, including family members. This mechanism is considered in the context of the 2010 U.S. health reform legislation known as the Affordable Care Act, which included a program along these lines.
The second mechanism is tax incentives to encourage families to pay informal caregivers and thereby leverage private resources with public funds in the form of foregone tax revenues. This mechanism is examined in the context of U.S. tax deductions of medical expenses, which include long-term care services.
The final mechanism is legal contracts to pay informal caregivers for the services they provide as employees of the care receiver through ‘family caregiver agreements.’ These contracts are analyzed in terms of their income tax, public benefits eligibility, retirement financing, and intergenerational wealth transmission implications.
Results: The long-term care program enacted in 2010 has serious design flaws such as voluntary enrolment, delayed benefit eligibility, and mandatory self-sustainability that exacerbated the potential economic problem of ‘adverse selection’ and caused the federal government to jettison its implementation.
Incentives in current U.S. tax law impose successive statutory hurdles that limit their effectiveness to very few situations. Legislative proposals to address some, but not all, of these limitations have languished and do not appear to have sufficient political appeal to be enacted any time soon, though at least one presidential candidate – Hillary Clinton – has recently resurrected a proposal she first introduced as a U.S. senator.
Family caregiver agreements address the problem of uncompensated caregivers when such agreements are considered with the foresight and comprehensiveness that employment contracts generally require. Nevertheless, such agreements confront serious cultural and tax barriers though they receive significant, if largely underappreciated, support regarding public benefits eligibility.
Conclusion: Until a broader consensus emerges in favor of social insurance schemes generally or greater determination to facilitate private payment arrangements via tax incentives, families wanting to address the problem of uncompensated caregivers for older relatives should look at caregiver agreements to achieve ‘second best’ results.