The federal government has an existing tax benefit for those that hold qualified long-term care insurance policies, but some state governments are considering implementing a tax for those that do not have a long-term care insurance policy.
Why Are States Proposing Another Tax?
While there are varying opinions on tax policy, the numbers for long-term care cannot be disputed. Those aged 65 and older have a 70% chance of needing to utilize some type of long-term care services in the future. The average long-term care expense for seniors is $138,000.
Currently, Medicare does not cover most long-term care needs. Medicaid will pay for long-term care, but you must qualify as it is a needs-based program. Therefore, many people will end up needing some form of long-term care with no plan to pay for it.
The idea behind a long-term care tax is that states can provide some form of coverage for long-term care without each individual having to seek out their own long-term care insurance policy, which can often be quite expensive for the average individual. The long-term care tax would also allow states to generate income for their Medicaid programs which often provide long-term care for low-income individuals.
Where is This Happening?
While as many as 13 states have begun discussing a long-term care tax, three states are leading the way in actually implementing one: Washington, California, and Minnesota.
In 2019, Washington’s legislature adopted a 0.6% payroll long-term care tax. While it has been about four years since this was passed, the state is still working on revising and implementing the program. We may see these revisions take effect later this year.
California established a state task force to examine possible options for a long-term care tax. While the task force presented five potential options, the state has not yet decided on which one it would like to implement. The options vary in coverage from $36,000 for one year of comprehensive benefits to $144,000 for two years of comprehensive benefits.
Minnesota has taken a different approach from both Washington and California. Instead of initially implementing a long-term care tax, the state is allowing private insurers to offer a product that would convert term life insurance to long-term care coverage. However, the state is still waiting for insurers to submit requests to sell the product, so it is not currently available to Minnesota residents.
What about North Carolina?
While North Carolina does not currently have a long-term care tax or pending legislation to implement one, discussions have begun within the General Assembly as to whether some of its members want to introduce legislation that would establish a long-term care payroll tax. Follow here for updates.
Let’s Prepare for Long-Term Care Planning
Having assisted many Wake County clients with long-term care planning, our team at Carolina Family Estate Planning understands that developing a long-term care plan is about not just protecting your own independence and dignity but also protecting those you love from the physical, emotional, and financial toll that caring for a loved one can take.
We’ve helped many clients take an interdisciplinary approach to their long-term care planning by exploring both legal and financial options. Usually, a well-rounded long-term care plan will involve a combination of legal, health care, and financial tools to meet your goals and maximize your protection. To get started, register for an upcoming seminar to learn more or call our office at 919-587-8364.