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Trying to Ease the Burden of the High Cost of Long-Term Care

Trying to Ease the Burden of the High Cost of Long-Term Care

August 24, 2023

Some States Are Trying to Ease the Burden of the High Cost of Long-Term Care

 Perhaps the greatest threat to a successful retirement is the extraordinarily high cost of convalescent care.  According to Genworth Financial, the average cost in the State of Georgia of a Private Room in a Nursing Facility is a whopping $91,250 per year, with almost no help from Medicare.  Even a Semi-Private room will still set you back an average of $84,133 per year.  An Assisted Living Facility will run you about $42,420 a year.  And should you choose to stay at home and have care provided to you there, 44 hours a week of skilled care costs, according to Genworth, an average of $52,624.

And this entire Long-Term Care industry did not even exist 50 years ago.  Back then, life expectancies were much shorter, and family really took on the care-giving responsibility.  I remember in my family that my maternal grandmother went blind from diabetes and was unable to live independently.  So, she lived with us for a year.  Then she lived with my cousins for a year.  Then with other cousins of mine, until she passed.  The idea of putting her in some kind of an institution was not even considered.  We would take care of her.

Well, that was much easier in those days, especially when you consider that my mother and her seven siblings never lived more than about five miles from where they grew up.  So, providing care for grandma did not require anyone to have to physically move.  Plus, honestly?  It was not all that unusual to have an older relative living with children.  I’ll bet that you probably have a similar story in your family.

But, today?  With people living longer and families spread out all over the country, if not the world, it is not nearly as feasible, and institutionalized care has really replaced family care in many cases.  And, with projections that four out of five older Americans will need help at some point with daily needs like bathing, dressing, using the toilet or preparing meals, it is a looming crisis that warrants our attention.

And, as indicated above, the costs associated with this care are significant and continue to rise!

So, a handful of states are attempting to address this issue by coming up with ways to help consumers by addressing the needs of aging populations and developing a way to rein in swelling Medicaid spending on long-term care.

Paying for such long-term care presents retirees with difficult choices. Medicare coverage is very limited. Private long-term care insurance policies are complicated and expensive. Medicaid, which insures low-income people, pays for long-term care only when a patient’s assets have been almost completely spent.

In Washington, D.C., policymakers and lawmakers have long agreed on the need for a government-sponsored solution — but not how to pay for it.  I know . . . I was shocked too!

But now, a handful of states are acting on their own.  This month, Washington state will start the Washington Cares Fund, a public long-term care insurance program.  And several other states are studying similar options.

State-sponsored long-term care insurance programs, however, do raise some questions, including rules for mandatory participation, how to make benefits portable when people move to another state, and how to coordinate the public plans with supplemental commercial policies.

But states that are moving forward see their programs as essential to addressing the needs of an aging population and a way to lower state-funded Medicaid spending on long-term care.

And, while it is true that most of us will require some assistance with daily living needs at some point in the future, the type of care and duration of that care are impossible to predict. A study by the Center for Retirement Research at Boston College indicates that roughly 25% of retirees in this country will have severe, and expensive care needs.

And too many Americans appear to be in a state of denial about long-term care. A survey by the Associated Press found that 69% of respondents had done little or no planning for long-term care needs — and just 16% were confident that they would have the money to pay for that help.

Insurance might seem like a sensible way to protect against these unknown risks. But the private long-term care insurance business has floundered over the past decade, and we’re finding it increasingly more difficult for applicants to be approved by the few insurers still providing long-term care coverage – especially for those over 60 years old.

Washington State’s Approach

With no action at the federal level, the state of Washington is moving forward with its own program. Over time, nearly all residents will contribute premiums via a mandatory payroll tax, and the benefit is universal.

Starting this month, most workers in the state will start paying a 0.58% payroll tax on their wages to fund the program. Starting in 2026, participating residents will be able to claim a benefit if they have a demonstrated need for assistance with three or more activities of daily living.

The maximum lifetime benefit of $36,500 will be adjusted annually for inflation; it is geared to cover about one year of care at home. Ten years of contributions are required to qualify to receive the benefit, but near-retirees will be able to receive a partial benefit starting in 2026 geared to the number of years that they have contributed.

A key aim of the program is to provide relief for middle-class families that are forced to spend down their life savings to receive long-term care through Medicaid.  It certainly can provide families with some breathing room to address their lover one’s care needs, and, at the same time, should reduce the state’s Medicaid spending.

Washington has considered additional concerns, including who can be exempt from participating. The legislation created an exemption for residents who had private coverage. The state later added a deadline on applying for that exemption — prompting more than 480,000 people to rush to buy the coverage, hoping to avoid the tax. They overwhelmed the insurance companies still selling long-term care policies in the state.

Portability of benefits poses another challenge. The program’s financial model assumes participation only by state residents; a commission has recommended several options for allowing people who have become vested in the program to receive a benefit if they move.

Lawmakers in several other states have introduced bills to either study or enact public long-term care insurance programs. Minnesota is weighing several options, including two that aim to make private insurance more affordable.

But, Washington aside, the most significant plan being developed is California’s. The state is studying the financial feasibility of several options for a public insurance program, with possible legislative action expected in 2024.

Like Washington, California would fund its program through a payroll tax, but the state is considering a “progressive” tax system that would feature a contribution cap and a waiver for low-income residents. Another difference is that the tax might be split between employees and employers.

California is weighing a range of benefit designs, some of which would be considerably larger than Washington’s. For example, one option would provide a maximum benefit of $110,400 per year, for up to two years, covering home-based services and residential facilities.

“The reality for us is that by the start of the next decade, 25% of our population is going to be 65 or older, and that’s about 8.4 million people in California,” said Michael Soller, deputy insurance commissioner for communications and press relations at the California Department of Insurance. “Leaving California seniors to fend for themselves is just not an option for us.”

In Georgia currently we have not heard that there are any plans on the drawing board to help with the increasing cost of convalescent care, which means that we’re on our own to either purchase insurance, pay the costs of care out of pocket, or deplete our nest-egg and apply for Medicaid.  But, because of the ever-changing elder-care landscape and the number of other states considering some kind of long-term care solution, just stay tuned . . . because you never know!