It’s a retirement worry few of us want to face: At some point, four out of five older Americans will need help with daily needs like bathing, dressing, using the toilet, or preparing meals.
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 are nearly exhausted. And many will depend on family members for help.
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, said Howard Glickman, senior fellow at the Urban Institute and “caring for our parents: Inspiring stories from families seeking innovative solutions to America’s most urgent health crisis.
“This is a clear, urgent problem, and there is little interest among politicians in something like a public program, until you start talking to them about paying to make it work,” Mr. Glickman said. “You have to raise the payroll tax. You can call it a contribution or whatever you want, but politicians look at it and they look at the tax increase – and they say forget about it.
Now, a handful of states are acting on their own. In July, Washington State will start WA Care Fund, a public long-term care insurance program. California is also considering a similar plan. Minnesota and several other states are studying options.
State-sponsored long-term care insurance programs raise some tricky questions, including mandatory participation rules, how to make benefits portable when people move, and how to coordinate public plans with complementary business policies.
But states that are forging ahead see their programs as necessary to meet the needs of aging populations and as a way to rein in Medicaid spending growth on long-term care.
“More and more, this is something that is just overwhelming the state budget,” Mr. Glickman said.
Many Americans Will Need Help
Most people will need some assistance with the needs of daily living, but the intensity and duration are impossible to predict.
Four out of five 65-year-olds will need some amount of long-term care during their remaining years, according to a study. Retirement Research Center at Boston College,
The researchers found that one-fifth of retirees will not need any support, but almost one-quarter will need serious and expensive care.
“The data make clear how big the risk is,” said Anqi Chen, research economist and assistant director of savings research at the Center. “Some may overlook the fact that they may need care later in life, and this will require resources either from family or savings.”
Many Americans appear to be in a state of denial about long-term care. A poll by The Associated Press-NORC Center for Public Affairs Research found that 49 percent of Americans People age 40 and older expect Medicare to pay for their long-term care. In reality, the program only covers 100 days in a skilled nursing facility after a hospital stay. The survey also found that 69 percent of respondents had little or no planning for long-term care needs — and just 16 percent were confident they would have the money to pay for that assistance.
A major long-term care requirement can be financially devastating. In 2021, the average annual national cost of a private room in a nursing home was $108,405, according to the most recent data from Genworth, a large long-term care insurance underwriter that publishes a annual survey at the cost of care.
Not all long-term care is provided in nursing facilities. A large part of it is made available at home, which can bring down the expenses significantly. The cost also varies greatly by location. And much of the labor is provided by unpaid family members and friends. AARP estimates That there will be 38 million family caregivers in the United States in 2021, providing an estimated $600 billion in uncompensated care.
“For families that don’t have insurance, the question is whether they have the financial resources to purchase care, or whether family caregivers are available,” Ms. Chen said. “And, is this a reasonable expectation on family members?”
Insurance may seem like a sensible way to hedge against these unknown risks. But the private long-term care insurance business has faltered over the past decade.
The idea of a public-private solution is not new. A decade ago, Mr. Glickman co-founded long term care financing associate, which brought together policy experts with wide political leanings. The group agreed on a framework that would combine a national universal government program with initiatives aimed at revitalizing the market for private policies.
Washington state perspective
With no action at the federal level, Washington state is moving forward with its program. Over time, nearly all residents will contribute premiums through a mandatory payroll tax, and the benefit is universal.
In July, most state employees will begin paying a payroll tax of 0.58 percent on their pay to fund the program. From 2026, participating residents will be able to claim benefits if they require assistance with three or more activities of daily living. The maximum lifetime benefit of $36,500 will be adjusted annually for inflation; It is formulated to cover approximately one year of care at home. (Ten years of contributions are required to qualify to receive benefits, but near-retirees will be able to receive partial benefits starting in 2026 for the number of years they have contributed.)
A key purpose of the program is to provide relief for middle-class families who are forced to spend their life savings to obtain long-term care through Medicaid, according to Ben Weghte, director of the WA Cares Fund at the Washington State Department. Social and health services.
“It gives families breathing space to meet the care needs of their loved ones,” Mr. Veghte said.
The program is expected to reduce state Medicaid spending, which Washington expects to account for 8.9 percent of its total budget over the 2023-25 period. Absent WA Cares, this figure will reach 10.9 percent by the end of this decade and 17.6 percent by 2045.
Washington has considered some tricky questions, including who might be exempt from participating. The law that was approved by state lawmakers in 2019 Created an exemption for residents with private coverage. The state later added a deadline on applying for that exemption — prompting more than 480,000 people to buy coverage in hopes of avoiding the tax. They overwhelmed the insurance companies still selling long-term care policies in the state.
Those applications were to be submitted by the end of 2022. But there’s no requirement for buyers to maintain their coverage or prove they still have it.
“We were concerned that people would just buy coverage and then drop it, which would be really counterproductive,” said John Mangan, vice president of state relations. In American Council of Life Insurance. “If people drop their private coverage and are not covered by a public plan, they are not covered at all — and that means they may end up on Medicaid, which is not the goal.”
Currently, out-of-state workers who come to work in Washington can apply for an exemption from the program; So can husbands of military personnel. (All federal employees, including military personnel, are also exempt.) People who have temporary nonimmigrant work visas, such as seasonal agricultural workers, can apply for exemptions. Certain disabled veterans who can receive care through the Department of Veterans Affairs are exempt.
Portability of benefits presents another challenge. The financial model of the program assumes participation only by residents of the state; A commission has recommended several options to allow people who have vested in the program to receive benefits if they relocate.
Questions also remain about some issues, including how complementary private policies will dovetail with the public program.
“The journey has been bumpy at times, but businesses want to make sure people can stay in the work force or get back into the work force, especially women, who are often caregivers,” Rachel Smith, president and chief executive officer of the Seattle Metropolitan Chamber of Commerce.
California and Minnesota step up
Several other state lawmakers have introduced bills to study or implement 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 important plan being developed is California’s. The state is studying the financial feasibility of several options for a public insurance program, with legislative action expected in 2024.
“If California moves forward, it will be exciting because it is a huge state,” Mr. Veghte said. “He could really break the dam for the rest of the country.”
Like Washington, California will finance its program through a payroll tax, but the state is considering a “progressive” tax system that would feature contribution caps and exemptions for low-income residents. Another difference is that the tax can be split between employees and employers.
California is weighing a variety of benefit designs, some of which would be significantly larger than Washington’s. For example, one option would provide a maximum benefit of $110,400 per year for two years, which includes home-based services and residential facilities.
“The reality for us is that by the beginning of the next decade, 25 percent 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. Said the California Department of Insurance. “Leaving the senior citizens of California to fend for themselves is not an option for us.”