As we begin Long-Term Care Awareness Month, it’s important to recognize a few fundamental issues shaping the current landscape of long-term care.
Advisors are likely to face several challenges when working with clients on comprehensive plans. First, few people have planned for potential extended or LTC needs, and many consumers and professionals lack in-depth education about the breadth of planning options. This includes a large cohort of mature baby boomers, many of whom will need some level of care as they age.
Complicating the outlook, COVID-19 has highlighted and exacerbated the shortage of skilled and unskilled care providers. Rising health care and prescription drug costs show no signs of abating.
Consumers routinely fail to plan for their long-term care, so crisis planning is becoming increasingly common. The results are negative consequences felt by family members and friends as well as federal and state budgets.
Many consumers do not understand current programs or are misinformed about who is eligible for service and long-term support. The oldest baby boomers are in their 70s, and many mistakenly believe that the government’s Medicare and Medicaid programs are equipped to meet their long-term care needs. In fact, longevity impacts programs that are not designed to handle the increasing volume or required duration of care. These are a few factors that are pushing state governments and the federal government to consider legislative options.
Government proposals for LTC
NAIFA’s Limited and Extended Care Planning Center – supported by sponsors who specialize in all aspects of limited, extended and long-term care – has formed a Legislative Task Force that tracks, discusses and influences legislation related to proposals federal and state LTC. The LWG is made up of participants from carriers, general brokerage agencies, site specialists, consultants, agents and NAIFA staff. The group keeps abreast of federal and state initiatives.
Developments in the federal space on which the group is engaged include:
WISH ACT, the Welfare Insurance Law for Seniors at Home:
» Would charge 0.6% payroll taxes (50/50 cost sharing by employee and employer).
The waiting period is one to five years — means-tested by income.
Social Security Caregiver Credit Act:
» Provide retirement pay in the form of social security credits to people forced out of the workforce to care for loved ones.
Better Care, Better Jobs Act:
» Expand Medicaid to home and community services.
» Increased wages and benefits for paid caregivers.
» Funded by Medicaid in the federal budget to cover home and community services.
Credit for Care Act:
» Create a non-refundable tax credit of up to $5,000 for caregivers.
The Long-Term Care Affordability Act:
» Allow qualified money to be used to purchase LTC insurance.
» Excludes pension plan distributions up to $2,500 per year to pay the premium from gross income.
» No income tax or penalty before age 59.5 on the distribution used.
Currently, none of these proposals are moving forward.
States settle
State budgets are under increasing strain as demands for long-term care services and supports increase. Washington is the first state to pass legislation establishing a state-funded LTC program.
Funding will come from a mandatory payroll tax: 0.58% of all W-2 earnings, with no caps or limitations. It will be assessed via payroll deductions.
Employees had until Nov. 1 to apply for an exemption if they had qualifying private traditional LTC insurance, group LTC coverage, linked and hybrid life policy or hybrid annuity policy in place.
» The maximum lifetime benefit is $36,500 (adjusted annually according to the consumer price index).
Governor Jay Inslee and Democratic legislative leaders in Washington announced an agreement to delay the new WA Cares payroll tax for employees as they resolve issues with the new LTC program.
Recognizing the importance of LTC needs planning is an important first step. However, the program is being clarified. Other states — including California, Michigan, Minnesota, South Dakota and Vermont — may soon follow suit with their own publicly-optional LTC plans.
California has established the Long-Term Care Insurance Task Force, which will present a feasibility report to the insurance commissioner, governor and state legislature early next year.
Significantly, the program should not give residents of the state a period of notice to purchase eligible insurance to opt out of the tax once the legislation is passed. Hawaii has proposed a plan (Kapuna) focused on supporting working caregivers.
The long-term care industry is responding to these initiatives by working to develop complementary products that will enhance public-private programs. Additionally, carriers are creating innovative new products to expand options for consumers to plan care financing.
Cooperation between states and carriers regarding effective product approval and consumer education will be critical to the success of any program. It is important for advisors to stay well informed during Long Term Care Awareness Month and throughout the year to understand how these developments could affect clients.