State Mandated Long-Term Care Insurance Aims to Address a Growing Crisis
The country’s first state mandated, publicly funded long-term care insurance (LTC) program went into effect last year, in Washington state. Its aim is to address the massive financial burden that long-term care is placing on families, especially those with around-the-clock needs.
This issue has been long in the making, but it has taken new prominence recently given demographic trends in the U.S. According to an AARP survey, more than 11,000 people in the U.S. turn 65 every day(i), and roughly three-quarters of them have a stated goal of staying in their current home as long as possible.
But the financial reality of this goal isn’t so straightforward.
According to The Center for Retirement Research at Boston College, about 25% of people over the age of 65 will eventually need significant support and services for more than three years(ii). Significant support over long stretches of time can be very expensive, even to the point of severely impacting a wealthy family’s finances. Genworth reports that the national median cost of a home health aide was $33/hour in 2023, which means that those needing around-the-clock in-home care can expect a median cost of $290,000 per year(iii). That’s roughly double the cost of a private room in a nursing home facility, and four times the cost of a private room at an assisted living facility.
Many families are exposed to this financial risk. There is, after all, a 100% chance we’re going to age and pass away.
Besides having a substantial amount of assets earmarked for care later in life, long-term care insurance is the most effective way to protect against the significant annual cost of care, in my view. It serves a dual purpose of providing financing for care, while also protecting a family’s assets from depletion due to the exceedingly high cost of that care.
Unfortunately, only about 10% of adults 65 and older have long-term-care insurance policy(iv).
The spirit of Washington state’s mandated program is productive, and it’s the only one in the country currently. Other states have the issue on the radar, however, including Oregon:
States to Watch
Washington, California, Minnesota, New York, Connecticut, Hawaii, Illinois, Kentucky, Maine, Massachusetts, Michigan, New Hampshire, New Mexico, North Dakota, Oregon, Pennsylvania, Utah, Vermont
Source: Nationwide Retirement Institute (v)
For now, Oregon’s state legislature has only had informal discussions about a program, while California has gone further in creating a “CA LTC Task Force” that delivered a report to the legislature late last year. There aren’t any indications that a LTC program is currently a priority in either state, however.
This issue hits close to home for me personally. My parents had a long-term care insurance policy in place for years before my father deemed it unnecessary and canceled it. When we later found ourselves paying $12,000/month for my mother’s care in a small town in Montana, it was left unsaid that the policy would have been paying for a substantial portion of the expenses—had they kept their policy in force.
There are numerous examples from my own family’s experiences, and especially when considering all my years as an advisor, that having insurance—and not having it—played a pivotal role in determining a family’s financial future. No one loves the idea of paying premiums your entire life for some outcome that may not ever happen. I certainly don’t feel good about it, either.
But I do feel very strongly that insurance is the most effective way to protect your family and your assets against risks known and unknown, and that having key coverage is essential—including for long-term care insurance.
Our approach to insurance with our clients at RSMA Wealth Management is two-fold:
We encourage clients to choose the amounts and types of insurance they need based upon their own experiences, projected outcomes, and their own risk tolerance. A good rule of thumb is: don't wish you had more insurance when the unexpected happens.
When clients ask for help evaluating insurance companies and policies—and/or want our help shopping for it—we're happy to oblige.
Long-term care insurance is a unique category. The idea of needing some level of care later in life is hardly a low probability event, and it’s much more likely than the risk of your house burning down, for example. Yet most people see the value of our homeowner’s insurance policies.
State mandated programs may spark a national conversation about the need for long-term care. What is not clear, however, is if the programs will ever gain traction nationally. Even Washington’s program is already at risk. “Initiative 2124” is a ballot measure being introduced that would make participation in the “WA Cares Fund” optional, which would likely choke off funding and make the program insolvent(vi).
For most families we advise, I don’t think it makes sense to hang out hope for some state or national program in the future. Private insurance is the more effective path forward, in my view.
Private insurance gives families more flexibility and greater potential benefits. For example:
With private LTC insurance, you can buy the policy that pays benefits in the manner you want them paid, whether that’s cash, provider reimbursements, or some other option.
State LTC programs are subject to changes in legislation or benefits that could vary based on income levels and tax rates.
State programs may pay limited benefits that don’t meet a family’s needs.
High-income earners may not ultimately be able to access state programs if/when they’re enacted.
Private insurance will likely provide a broader set of choices of how and where to receive care, including having a policy be portable between states (which state programs may not necessarily include).
Bottom line: most families with significant assets should at least strongly consider owning a long-term care insurance policy. There are many misconceptions about long-term care insurance, which is a big reason my father ultimately canceled his and my mother’s policy. Long-term care coverage looks a lot different today than it did 20 or 30 years ago, with affordable options, guaranteed premiums and benefits, and more.
In the realm of retirement and estate planning, it's a critical conversation worth having.
(i) Source: “The Crushing Financial Burden of Aging at Home,” The Wall Street Journal, September 4, 2024.
(ii) Source: “The Crushing Financial Burden of Aging at Home,” The Wall Street Journal, September 4, 2024.
(iii) Source: “The Crushing Financial Burden of Aging at Home,” The Wall Street Journal, September 4, 2024.
(iv) Source: “The Crushing Financial Burden of Aging at Home,” The Wall Street Journal, September 4, 2024.
(v) Source: Nationwide Retirement Institute, “What’s Next in State-Mandated LTC?” July 22, 2024.
(vi) Source: Nationwide Retirement Institute, “What’s Next in State-Mandated LTC?” July 22, 2024.
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