Difficulty of Care: Alligning Tax and Health Care Policy for Family Caregiving

In the United States millions of people live with disabilities, many of whom require assistance with activities of daily life to remain in their homes and communities. However, financial support for this assistance is limited. Many caregivers forgo working outside the home in order to provide care to a family member. And while state and federal programs provide some compensation for caregiving, caregivers frequently face problems including poverty, lack of health insurance, lack of Social Security and Medicare credits, and lack of retirement savings. Our nation’s paltry support for caregiving threatens the practical ability of people with disabilities to choose community integration over institutional living. This Essay examines the little-known and little-used “difficulty of care” gross income exclusion under I.R.C. § 131 as a possible vehicle to improve this picture. While § 131 originated as an exclusion for foster payments, it was reinterpreted in IRS Notice 2014-7 to apply to contemporary programs for in-home services and supports. Unfortunately, the impact of this reinterpretation was complicated and hotly contested. This Essay juxtaposes the evolution of home and community-based health care services, the Affordable Care Act, and the evolution of tax expenditures for low-income taxpayers to explain how the tax and health care systems collided in the aftermath of Notice 2014-7. This Essay reveals tensions and contradictions between tax and health care policy, informed by case examples and by ground-level considerations of program administration. It suggests that a gross income exclusion is an ineffective means to implement policy preferences and that policymakers should undertake a broader examination of the interactions between health and tax provisions when considering financial supports for caregiving. Finally, the Essay offers preliminary considerations for redesigning tax supports for caregiving, both to better reflect the values of dignity and autonomy that underlie home-based services, and to prevent unintended harm to low-income families.