As our population ages, discussions about long-term care (LTC) and who pays for it are essential. LTC is ongoing care in a care facility, nursing home, or at home for those unable to perform a certain number of activities of daily living (ADL) without assistance. ADLs include eating, bathing, dressing, toileting, transferring in and out of bed, continence, or when physical, mental, or cognitive function is impaired, or a doctor has ordered specific care.
For those with LTC insurance (LTCI), ADLs determine when the policy will start paying for care. Paying for LTC can be costly until the policy begins to pay after a set time, such as 60 or 90 days. During that time, it is up to the individual to pay depending on their level of care. Here are the levels:
- Skilled care- 24/7 care ordered by a physician designed to treat a medical condition and performed by qualified medical personnel.
- Intermediate care- Rehabilitative care by registered and licensed nursing staff, aids, and other healthcare providers.
- Custodial care- Care provided by someone to assist with ADLs, often supervised by a physician.
Many gravely assume that Medicare covers LTC, but in fact, Medicare only provides limited coverage for select services, such as physical therapy.
While no one expects to need LTC, it's important to plan for it since the chances of needing care are high. Someone turning 65 today has almost a 70% chance of needing LTC services and support in their remaining years.
The world’s population is aging more rapidly, and people are living longer, both increasing LTC costs. These costs vary by geographic location and level of care needed. For many, paying out-of-pocket for LTC can be expensive and may deplete savings, income, and assets. Here are the 2021 national monthly median LTC costs:
- Homemaker services $4,957
- Home health aide $5,148
Community and assisted living
- Adult day health care $1,690
- Assisted living facility $4,500
Nursing home facility
- Semi-private room $7,908
- Private room $9,034
Source- 2021 Cost of Care Survey, Genworth.
For those with little or no assets or income, LTC is covered by Medicaid once all financial assets are gone after several years.
Both states and the federal government shares financial responsibility for the Medicaid program by matching state costs with federal dollars. The way Medicaid is designed, states are left paying the bill as they work to recoup LTC costs from the federal government, which can take months or years.
With shrinking state budgets, Medicaid deficits, and increasing LTC costs, many states are working toward tax legislation to supplement the cost of LTC for their residents. Here are the states that have passed or introduced state-funded LTC bills:
Washington Long-Term Services and Supports (LTSS)
Washington is the first state to create a publicly funded insurance program providing residents with basic LTC benefits. Beginning July 1, 2023, the program will be financed by Washington workers through a payroll deduction of a 0.58% mandatory payroll premium assessed against all W-2 wages uncapped. Rates can change and will be evaluated biannually.
Washington residents are vested in the program once they've paid in for at least ten years without a break of five consecutive years or three of the last six years and worked at least 500 hours per year in each qualifying year.
Once vested, they can use the program benefits starting January 1, 2025, to pay for LTC riders on life insurance and annuity contracts, qualified LTC contracts, LTC riders, or policies purchased in group contracts. Participants are allotted 365 benefit units with a maximum lifetime limit of $36,500 (adjusted for inflation). Payments of up to $100 (adjusted annually) are made upon each benefit unit used to reimburse approved services provided on a specific date. Eligible beneficiaries can combine their individual benefit units to receive more approved services per day if the lifetime benefit units are not exceeded. Partial benefit units may be retained if the cost of the covered care is less than the value of the benefit unit
Source – LTC Washington Residents, Sullivan, MRSC.
Other states with proposed legislation for state-funded LTC programs
Minnesota- The proposed legislation would create a dedicated fund for LTC services; closing a tax loophole by levying a tax on individuals with income not taxed for Social Security purposes to fund LTC services.
New York- Senate Bill S9082 will authorize a similar plan to Washington. If passed, the law will require that any employed individual who drops their LTCI notify the state. That person will then be required to pay the tax. Payroll deductions would begin two years after the law is adopted. The bill is pending approval by the NY Senate and then must be signed by the Governor of NY to become law.
California- California is debating several proposals, including offering $144,000 in LTC benefits funded by a payroll tax on both employers and employees.
Michigan- Bill introduced, similar to Washington.
Pennsylvania- Bill introduced, similar to Washington.
Other states beginning the legislative process to help fund LTC through employer and employee payroll taxes include Alaska, Colorado, Hawaii, Illinois, Missouri, North Carolina, Oregon, Pennsylvania, and Utah.
How to cover the cost of LTC
You can pay your LTC privately if you have the financial resources. But if you don't, LTCI can protect you against the risk that LTC will cost more than you can afford. In exchange for your premium payments, the insurance company agrees to pay a daily or monthly LTC rate for services defined in the policy contract. LTCI can help you preserve your assets and help guarantee that part or all of your costs are covered for the remainder of your care.
The cost of your LTC policy will depend on your age and underlying health conditions. Riders may also impact your policy's expenses, such as inflation protection, benefit period (months to years, lifetime), and elimination period (the number of days until benefits begin).
A financial professional experienced in LTCI can help you determine how the cost of care will impact your retirement savings and assets if you choose to pay out-of-pocket or get LTCI.
Reach out to discuss LTC planning strategies.
Content in this material is for educational and general information only and not intended to provide specific advice or recommendations for any individual.
This material contains only general descriptions and is not a solicitation to sell any insurance product, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
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