Planning for a Long-Term Care Public Option
There is significant change on the horizon in the Care Planning space. The impact of consumers being unprepared for the cost of care and the corresponding stress this places on existing programs has led many state governments to take action by introducing legislation that creates a “public option” for Long-Term Care insurance. This coming wave of state level Long-Term Care legislation puts clients in a tough position: How to prepare for any new legislation and the associated new income tax while the final form of that legislation remains unknown? Based on the current state of the most mature LTC legislation from the state of California, a wait and see approach carries a very real risk. As currently written, the legislation may offer an opt out only if consumers have personal Long-Term Care coverage in place prior to the law going into effect. By the time the final details of the legislation are known, it will likely be too late to execute a strategy to allow clients to opt out of the program and avoid any new taxation.
As important as preparing for potential legislation may be, the real risk clients face is not having a care plan in place as they age that includes both how they want to receive care as well as how to pay for it. Many consumers currently feel this risk rather acutely as they care for their own aging parents. Ideally, the potential of new legislation and new taxes will serve as a catalyst for a larger planning conversation that positions clients for any impending legislation as well as maintains forward-looking planning flexibility.
The current state of the California legislation includes five potential designs, each with their own unique attributes. They vary widely in terms of the benefits they could provide as well as the corresponding tax. The most robust design could offer the following benefits:
- LTC Benefits of at least $6,000 per month
- A Benefit Period of two years or longer
- An increasing benefit at a 3% compound rate
There is a view that this level of benefits may represent the minimum standard for personal coverage to qualify for an opt out of the public option and the corresponding tax. Even if this benefit level represents a “safe harbor” of sorts, it is far from an adequate amount of coverage for the typical claim in many markets, both in terms of monthly benefit as well as duration of benefits. This shines a light on the difference between planning for potential legislation and implementing a more comprehensive care planning strategy. Educating clients about the difference may also represent the first step in guiding clients through a decision-making process that addresses both elements of this very real planning challenge. Also, it is critical to consider other designs with longer benefit periods that may be available at similar, if not lower pricing versus looking exclusively at 2-year benefit periods even if only seeking the minimum coverage to qualify for a potential opt-out.
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