Long-Term Care Needs Affect All of Us

More than half of Americans turning 65 will need some form of long-term care (LTC) assistance as they age, according to the U.S. Department of Health and Human Services (HHS). Long-term care insurance helps cover the costs associated with aging, such as nursing home care, assisted living and in-home care. The need to prepare for this life stage affects all of us, either directly as care seekers or indirectly as possible caregivers or planners.

LTC services can be expensive – without insurance, the costs can quickly deplete retirement savings for the average American.

According to the HHS, the average cost of a private room in a nursing home is over $100,000 per year – yet the average American aged 60-69 only has $198,600 in their 401(k). Assisted living facilities and in-home care can also be costly. LTC insurance can help cover these costs, allowing people to receive the care they need without draining their savings or looking to their families for support.

In addition to financial protection, long-term care insurance can alleviate the stress that often comes with aging and declining health.

LTC coverage can provide more control over care options to best meet needs and preferences such as the site of care. Planning for and finding care can be a significant financial and emotional burden. Having coverage can allow loved ones to focus on providing emotional rather than financial support. Finally, building LTC insurance into a financial plan can help people maintain their independence and quality of life as they age or face health challenges.

Aside from these incentives, a new impetus exists to purchase LTC coverage.

Many states, concerned with the expected burden on Medicaid, are considering the implementation of payroll taxes to fund long-term care services – with the potential to avoid the tax if LTC coverage is already in place.

Washington was the first state to implement a payroll tax to fund long-term care services known as the Long-Term Services and Supports Trust Act. This tax started being collected from Washington state resident earnings effective July 1, 2023 and will provide eligible individuals with up to $36,500 in lifetime benefits for LTC care services. Other states, such as California and New York (and as of this writing, 13 others), are considering similar payroll taxes to fund long-term care services. The implementation of payroll taxes for LTC provides a reliable source of funding, however, it does not come cheap (in Washington the tax is .58% of earnings with no dollar maximum) and the benefit cannot be customized to an individual’s needs.

While a tax ensures that everyone pays into the system, regardless of whether they end up using LTC services, payroll taxes can burden some individuals – particularly those already struggling financially. And given the current costs of care, the benefits provided by these taxes may not be enough to cover the full cost of long-term care services, leaving individuals and their families to cover the remaining costs. State programs may also have provisions that limit benefit payments, such as the requirement that care is provided within that state. We don’t know when the next state will pass legislation, but we do know that some proposed legislation requires that LTC coverage be in place before the law takes effect to avoid the tax.

Our team recognizes critical decisions need to be made – and the time is now.

We are conducting a new Benefits Curve: Insights to Action webinar on Thursday, August 17 to explain the issues surrounding long-term care, potential tax exposures, and how employers can help their workforce prepare. I encourage you to sign up today to hear more directly from EPIC LTC specialists.

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