States Move to Fill Care-Coverage Gap as New Policies Offer Solutions

Recognizing that caring for a spouse or family member with a debilitating illness or injury can be costly, nearly 20 states are considering ways to make some form of long-term care (LTC) coverage mandatory.

Why States Are Taking Action

The numbers are staggering. The average cost in the United States for one month of nursing home care is $7,698. Annuities and traditional life or health insurance policies are not designed to cover LTC costs. The Alzheimer’s Association estimates the cost for care in the final five years of life at $367,000 for people with dementia and $234,000 for those without. While the duration and extent of long-term care varies per individual and can change over time it’s important to note that:

• Average lifetime LTC costs are $172,000 per person (SHRM HR- Magazine).
• The annual cost of care in a private room in a nursing home is $108,405 (Genworth 2022 Cost of Care Survey).
• Women generally need care longer (3.7 years) vs. men (2.2 years).
• Medicare pays for very little of skilled nursing home care.
• The cost of benefits provided by an LTC policy often exceeds premium outlay.

Washington State Makes It Mandatory

In 2022 Washington State imposed a payroll tax on employees to cover state-provided long-term care benefits. Workers without private coverage pay $0.58 on every $100 earned to cover future, in-state, long-term care costs – about $290 per year for a $50,000 salary. As those providing proof of coverage are exempt from the tax, employers scrambled to help workers avoid the tax via employee-funded, payroll-deduction solutions.

The Life-LTC Solution

While long-term care (LTC) insurance can pay for the care needed to perform activities of daily living (ADLs), a life-LTC hybrid policy can provide truly comprehensive coverage. Having to draw down savings and/or sell assets or leave the workforce to directly provide care can add stress to what is frequently a trying experience. Such policies combine a death benefit with an LTC rider to cover the cost of care while helping to protect and preserve wealth through a death benefit -- thoroughly reducing or eliminating much of the pressure that frequently comes with caring for an elderly or disabled individual.

Not just for the Elderly

While traditionally associated with “geriatric care,” adults from 31 to 64 are the fastest growing nursing home population. Today, about 40 percent of those receiving long-term care are between 18 and 64.

Sixty-five-year-olds today have a 70 percent chance of needing long-term care and an estimated 20 percent of Americans will need it for longer than five years according to the American Council on Aging. Consider that:

• 70 percent of Americans over the age of 65 will need long-term care (U.S. Department of Health and Human Services Survey).
• Fewer than 1 in 30 Americans own a LTC insurance policy. Only about 7 percent of adults over age 50 have LTC.
• LTC is one of the most requested benefits by executives.
• Only 32 percent of employers offer LTC insurance as an employee benefit (SHRM HR- Magazine).

What a Life-LTC Hybrid Policy Can Do

As long-term care events impact families as well as individuals, it’s reassuring to know that the numerous resources available to Life-LTC policy holders can cover an individual’s changing needs by providing:

• Reimbursement for services utilized by those with disabilities, chronic illness, or injury
• Coverage for in-home care, assisted living and nursing home facilities
• Compensation for professional or informal (family) caregivers
• Coverage for activities of daily living
• Coverage for occupational, speech, physical and rehabilitation therapy
• Respite care
• A death benefit -- income tax-free for beneficiaries paid upon death
• A Living Benefit rider- the insured can advance 4 percent of their death benefit per month for 25 months of care.
• Income-tax-free, long-term care reimbursements
• Money-back guarantee
• Inflation and asset protection
• Terminal illness advance -- if the insured is terminal and expected to pass in the next 12 months the policy will pay an advance of 75 percent of the death benefit
• Convenience -- comprehensive coverage in one policy

Filling Coverage Gaps with Long-Term Care Insurance

Long-term care insurance typically covers the care that is not covered by health insurance, Medicare or Medicaid. While the amount and level of care varies per individual, long-term care coverage is triggered when one cannot perform two of the six activities of daily living: dressing, bathing, eating, toileting/continence, transferring (getting in and out of a bed or chair), and walking, or requires supervision due to severe cognitive impairment. LTC insurance can pay for the care required as a result of a disabling disease such as Multiple Sclerosis, Parkinson’s, Alzheimer’s, stroke or a serious accident or illness.

Why Now?

Why buy LTC protection when one’s relatively young and healthy? Eligibility  can be lost after experiencing a negative health event and policy prices tend to rise as one ages. Although age is not a determining factor, about 70 percent of individuals over 65 will require at least some form of long-term care assistance.^[1] About 40 percent of those receiving long-term care today are between 18 and 64.

The LTC Market

Younger prospects often delay purchasing long-term care insurance because of competing financial demands. While individuals generally realize the need for long-term care very few actually take steps to ensure coverage and are often surprised to learn that annuities and traditional life or health insurance policies are not designed to cover LTC costs. Also, there is confusion over which services are covered. Many are unaware that most long-term care services can be received in one’s home as well as in assisted-living facilities, nursing homes, adult day care, hospice and alternative-care settings.

Preparing for one’s financial future can be challenging. Fortunately new products and services can help provide peace of mind. Contact a Graham Company representative to learn more.

1 U.S. Department of Health and Human Services. “The Basics,” https://longtermcare.acl.gov/the-basics/ (accessed August 2020).