Planning for Publicly Funded Long-Term Care Insurance

By Brian Gordon

To its credit, modern medicine has successfully expanded the average human lifespan. We live much longer, on average, than we did just a century ago. This means that people are generally able to enjoy full, rich lives much further into their golden years. 

But these medical achievements come at a price—literally. Because people live so much longer, their medical needs have become progressively more expensive. People need care—and the longer they live, the more care they’ll need in the form of routine appointments, acute treatments, and long-term care.

Unfortunately, it’s nearly impossible for individuals to predict when they will incur medical expenses. As a result, some clients over the age of 60 enter their retirement years unprepared for their medically related financial needs. States across the country have seen this happening and have felt compelled to offer programs, relief, and assistance. 

Such programs have not become a reality in any state yet. The closest is Washington state (see below for details). There are, however, long-term care initiatives on the drawing board in other states. Financial planners and those eyeing their retirement alike would be well served by staying informed, as these state-level programs can have a significant impact on overall long-term care insurance (LTCI) options.

Washington State’s Long-Term Care Plan

As one of the first states ready to roll out an LTCI program, Washington has been closely observed over the last few years (see “The WA Cares Fund long-term care insurance mess: What next?” in the May 2022 NAPFA Advisor). Originally slated to launch in early 2022, the Washington LTCI program ran into trouble almost immediately.

Some of this came down to lackluster planning or questionable execution. LTCI experts quickly identified some key problems:

• A low payout: Under the Washington state public LTCI plan, residents would be entitled to a payout of $100 a day, with a lifetime cap of $36,500. This may seem substantial, but the reality is that this payout is insufficient to cover a single room in a nursing home for six months. And with long-term care costs continuing to rise faster than inflation, this lifetime cap is unlikely to be enough for the average Washington resident. The state is offering a Band-Aid, not a robust plan.
• A confusing rollout: The Washington state plan allowed residents to opt out. Unfortunately, far more residents than anticipated opted out of the program, putting it on a financially shaky foundation. Additionally, because the program’s implementation was delayed multiple times, deadlines for action have become convoluted and confusing. 
• Insufficient lead time for approvals: Most LTCI policies require individuals to undergo a physical or other medical exam. Because the period leading up to the Washington public plan was relatively short, individuals had trouble scheduling the right appointments, so exams and the system became backlogged and clogged. 

Partly due to these issues, Washington decided to delay the implementation of its public LTCI program. It’s currently scheduled to roll out in July 2023. Several other changes have been made to the program in an attempt to increase its chances of success. 

However, only time will tell whether those changes are enough. And LTCI experts in the area remain doubtful. 

Other States

It’s not unusual for large public programs to weather significant growing pains when they first get going. Washington’s lack of success has not necessarily deterred other states from working on their own programs.

In fact, the next state that is likely to have its own fully functioning program is also the most populous: California. To create a system that’s both well thought out and reliable, policymakers in California hired a consulting firm to study public LTCI programs and deliver a set of options.

On December 23, 2022, the consulting firm delivered those recommendations to the state, detailing possible pathways to get the program up and running, what it might cost, and how to ensure residents receive tangible benefits.

Similar working groups and consulting initiatives are reviewing LTCI programs in the following states: Alaska, Colorado, Hawaii, Illinois, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Mexico, New York, North Carolina, Oregon, and Vermont. These states are moving down the path of evaluating their options on their own timetables.

The Key to a Successful Public LTCI Program

States are under enormous pressure to help constituents grapple with rising long-term care costs, so the status quo can’t remain unchanged.

This means that public LTCI programs are likely to be launched at some point. It is our position that the best state program is one that would allow for both public and private funding. There are two primary reasons this would be successful:

• In all of the public LTCI proposals introduced so far, benefit promises have been insufficient to cover realistic expenses. Additionally, long-term care costs are increasing at a rate that exceeds inflation. A state program offering $100 a day would only make a small dent in the long-term care cost, given that the nationwide median is $163 a day for home health care and $297 a day for a private room at a nursing facility, according to the 2021 Genworth study. Allowing residents to invest in supplemental private insurance can help individuals more effectively cover costs associated with long-term care.
• A public/private partnership is a system many Americans are already familiar with. For example, most Americans already save for retirement by combining private and public resources such as employer 401(k) plans and Social Security. This means that social acceptance and infrastructure are largely already in place. This avoids the uphill battle of mandating a public-only marketplace. And because LTCI costs are already closely linked to retirement planning, this will make for an easy transition for most Americans.

Act Now

As a financial planner or LTCI professional, these state programs-to-be can make your planning prospects significantly more uncertain. After all, part of the task of retirement planning is to look far into the future and create as much certainty as possible. 

Based on what we’ve seen so far, there are benefits to encouraging your clients to act sooner rather than later. Once Washington state’s program is up and running, it may become very challenging for clients to purchase private LTCI. The same may—or may not—be true in other states as their programs roll out. Making matters even more challenging for clients, if the LTCI environment in any state becomes too unpredictable, insurance companies may pull out of the market (we saw this happen when Washington state originally rolled out its plan in 2022; almost all carriers ceased sales).

Purchasing LTCI now—before public programs begin operating—can give you a bedrock of certainty and provide your clients with benefits they can count on. There’s no advantage to waiting. In fact, the younger and healthier individuals are, the easier and cheaper it will be to obtain LTCI. Purchasing the right LTCI option today can make planning for that future significantly easier.

You Can’t Predict the Future, But You Can Plan for It

The future can be difficult to predict. The more certainty you can lock in—and the sooner you lock it in—the easier it is to respond to what’s to come. Providing your clients with that certainty can help them feel better about their future.

True, public LTCI plans may complicate the picture somewhat. But the costs of long-term care are likely to continue accelerating, and it’s hard to imagine the benefits in state LTCI plans keeping up. 

So now is the time to focus on what the best public programs might look like and help your clients prepare for uncertainty by locking in their LTCI plans, premiums, and benefits today.

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Brian Gordon is the president of Gordon Associates. Gordon Associates has specialized in LTCI and long-term care planning since 1975. Brian and his team have been a proud NAPFA Resource Partner for over 20 years. Contact 800-533-6242 or info@galtci.com.

image credit: istock.com/syahrir maulana