Long-Term Care Tax Legislation: What You Need to Know
As our population ages, discussions about long-term care (LTC) and who pays for it are essential for many families and state governments. LTC is ongoing care in a care facility, nursing home, or at home for those unable to perform a certain number of activities of daily living (ADL) without assistance. ADLs include eating, bathing, dressing, toileting, transferring in and out of bed, continence, or when physical, mental, or cognitive function is impaired, or a doctor has ordered specific care.
For those with LTC insurance (LTCI), ADLs determine when the policy will start paying for their care. Paying for LTC can be costly until the policy begins to pay after a set time, such as 60 or 90 days. During that time, it is up to the individual to pay depending on their level of care:
Skilled care- 24/7 care ordered by a physician designed to treat a medical condition and is performed by qualified medical personnel. Intermediate care- Rehabilitative care by registered and licensed nursing staff, aids, and other healthcare providers.
Custodial care- Care provided by someone to assist with ADL, often supervised by a physician.
Many gravely assume that Medicare covers LTC, but in fact it only provides limited coverage for select services, such as physical therapy. While no one expects to need LTC, it's important to plan for care since the chances of needing care are high.
For those with little or no assets or income, long-term care (LTC) is covered by Medicaid once all financial assets are gone after several years. Both states and the federal government share financial responsibility for the Medicaid program by matching state costs with federal dollars. The way Medicaid is designed, states are left paying the bill as they work to recoup LTC costs from the federal government, which can take months or years.
With shrinking state budgets, Medicaid deficits, and increasing LTC costs, multiple states are working toward tax legislation to supplement the cost of LTC for their residents. Here are the states that have passed or introduced state-funded LTC bills:
Washington Long-Term Services and Supports (LTSS) Washington State was the first state to create a publicly funded insurance program providing residents with basic LTC benefits. Starting January 1, 2023, the program will be financed by WA workers through a payroll deduction of a 0.58% mandatory payroll premium assessed against all W-2 wages uncapped. Rates can change and will be evaluated biannually. WA residents are vested in the program once they've paid in for at least ten years without a break of five consecutive years or three of the last six years and worked at least 500 hours per year in each qualifying year. Once vested, they can use the program benefits starting January 1, 2025, to pay for LTC riders on life insurance and annuity contracts, qualified LTC contracts, LTC riders, or policies purchased in group contracts. The total benefit available to an individual is $100 per day for a yearly benefit of $36,500.
Other states with proposed legislation for state-funded LTC programs
Minnesota- The proposed legislation would create a dedicated fund for LTC services; closing a tax loophole by levying a tax on individuals with income not taxed for Social Security purposes to fund LTC services.
New York- Senate Bill S9082 will authorize a similar plan to Washington. If passed, the law will require that any employed individual who drops their LTCI notify the state. That person will then be required to pay the tax. Payroll deductions would begin two years after the law is adopted. The bill is pending approval by the NY Senate and then must be signed by the Governor of NY to become law.
California- California is debating several proposals, including offering $144,000 in LTC benefits funded by a payroll tax on both employers and employees.
Michigan- Bill introduced, similar to Washington.
Pennsylvania- Bill introduced, similar to Washington. Other states beginning the legislative process to help fund LTC through employer and employee payroll taxes include Alaska, Colorado, Hawaii, Illinois, Missouri, North Carolina, Oregon, Pennsylvania, and Utah.
How to cover the cost of LTC You can pay your LTC privately if you have the financial resources. But if you don't, LTCI can protect you against the risk that LTC will cost more than you can afford. In exchange for your premium payments, the insurance company agrees to pay a daily or monthly LTC rate for services defined in the policy contract. LCTI can help you preserve your assets and help guarantee that part or all of your costs are covered for the remainder of your care. If you have questions about LTCI we can help you determine how the cost of care will impact your retirement savings and assets if you choose to private pay or supplement with LTCI. We can also answer questions about pending state LTC bills and how it may impact your situation.