Most people are aware that long-term care costs are rising dramatically Coupled with people generally living longer, many are struggling with how to finance long-term care in the highly likely event that we will need it later in life.
Long-Term Care Is a Real Issue
Let’s review some of the startling statistics before we ponder what may be headed our way from Sacramento in response the problem. First, 70% of those turning 65 this year will require long-term care services at some point in their lifetimes, and 24% will require long-term care for more than 2 years 1. The average duration of long-term care need is 3.7 years for women and 2.2 years for men. The median annual cost for nursing home care (private room) in 2020 was $105,850 (+3.57% vs. 2019). 9% of those turning 65 this year will incur out-of-pocket long-term care costs of more than $250,000 during their lifetimes. And if you are unlucky enough to be afflicted with dementia, those costs go up by nearly 1/3.
In 2016, 62% of nursing home residents received their care through Medicaid (Medi-Cal), but the maximum “countable” assets a healthy spouse can retain for the other spouse to be eligible for long-term care through Medicaid is only $130,380 (ave. across states). This means that too many families are forced to spend down their assets before they can qualify, laying waste to plans to leave something for the kids.
The Legislative Response (Washington State and California)
In an attempt to “solve” this problem, Washington State enacted a state-sponsored long-term care insurance plan, financed by a .58% payroll tax on all W2 income with no cap. The plan provides a pool of $36,000, up to $100/ day of coverage for those vested in the plan. Vesting takes a number of years and those who pay into the plan, but retire out of state will receive no benefit. A one-time opt out provision was included for those with private plans, but that period ended 11/1/2021.....not much of a warning! Not surprisingly, private carriers in Washington State were inundated with submissions for minimum face amount policies, causing 95% of carriers to withdraw from the market until after the deadline.
Not to be outdone, California has established a Long-Term Care Insurance Task Force to evaluate the Washington plan as a possible solution to the burden long-term care is placing on the Medi-Cal budget.
If the Washington experience is any indication, similar legislation in California would be expected to increase minimum issue ages for LTC products, increase the minimum policy face/ benefit amounts for long-term care riders, increase first-year premiums and see carriers suspend product availability in California altogether. Consider the extreme example for a 40-year-old high earner making $500k per year as a W2 employee. Assuming she works until 65, she pays $2900/ year for 25 years ($72,500) for a $36,000 benefit.
StoneKimbro has been a long time advocate for long-term care planning, which for many means a life insurance product with a long-term care rider. These policies can be offered on an individual basis. StoneKimbro has a unique voluntary group product that can be offered on a guaranteed insurability basis, meaning employees can pay the premiums and there is no health underwriting. The case for considering private long-term care coverage is strong, and if what has transpired in Washington carries over to California, it will be even stronger. Contact us today for a free consultation about your long-term care questions.
Insurance and annuities are products of the insurance industry. Guarantees are subject to the claims-paying ability of the insurance company and surrender charges may apply if money is withdrawn before the end of the contract. Please keep in mind Insurance companies alone determine insurability, and some people, for their own health or lifestyle reasons, are deemed uninsurable.
- 100 Must-Know Statistics About Long-Term Care: Pandemic Edition https://www.morningstar.com/articles/1013929/100-must-know-statistics-about-long-term-care-pandemic-edition