i understand that there is stigma around the word, but from that article it doesn't sound as if it is being used improperly. retardation typically refers to people who have an IQ below 70, although recently it has also been extended to include ppl who have significant limitations with adaptive behaviour (e.g., communication, ability to care for self etc). the article refers to the bill saying "hospital, nursing facility or intermediate-care facility" - which makes me think they really did mean to refer to people who sadly do fall under this classification i.e., people who need higher levels of care because they cannot do it themselves.
it did not sound like it was being used to describe unrelated mental disorders e.g., schizophrenia, depression. it sounds like it was being used in its technical sense.
i dont know - could well be a cultural thing - that the word is more taboo in the US than over here, but i personally do not see a problem with (what i've inferred) it was used for, given that one article wanttoheal posted. obviously, taken out of its surrounding context, so who knows

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