A long-term care idea whose time has come? Or another government overreach?

About 70% of people ages 65 and older will need some type of long-term care during their lifetime. These needs include being able to protect their assets against the high costs of long-term care, as well as to preserve their children’s inheritance. When considering long-term care, consumers want options such as nursing home care, home health care, assisting living or custodial care.

Washington state recently passed a law where state residents are taxed on their income to pay for long-term care. California lawmakers now are considering Assembly Bill 567, which would create a similar long-term care saving program for W-2 workers in that state.

No doubt, long-term care is the ticking time bomb for the 78 million baby boomers, the last of which will turn 65 in 2029. Centenarians and 85-year-olds are the fastest-growing population segments, so it will be interesting to see how AB567 is fleshed out and whether it will be viable model for the 12 or so other states considering similar legislation.

The tax pros and cons of AB567, which proposes to tax W-2 income to pay for long-term care insurance, can have a significant impact on the availability of LTC policies from insurance carriers.

Here are some potential tax pros and cons and how they might affect the availability of LTC policies from insurance carriers.

Tax pros

1. A stable funding source: AB567 provides a stable funding source for the long-term care insurance program. With a reliable source of funding, the program potentially could offer more comprehensive coverage than private insurance policies, which can be subject to fluctuations in premiums and benefits.
2. Tax-deductible premiums: Under the proposal, premiums paid by taxpayers for the long-term care insurance program may be tax-deductible, which could make the program more attractive to some taxpayers.
3. Reduced reliance on Medicaid: By providing a public long-term care insurance program, AB567 potentially could reduce the burden on Medicaid, which currently funds a significant portion of long-term care services. This could allow Medicaid to focus on providing care to those who are most in need.

Tax cons

1. Higher taxes: AB567 would increase taxes on W-2 income, which could be a burden on some taxpayers.
2. Market distortion: The proposal could distort the market for private long-term care insurance, potentially reducing the availability and affordability of such policies.
3. Impact on availability of long-term care policies: The impact of AB567 on the availability of long-term care policies from insurance carriers is unclear. On the one hand, the proposal potentially could reduce the demand for private insurance policies if the public program offers more comprehensive coverage or is more affordable. This could result in a decrease in the availability of private policies or higher premiums for those policies.

On the other hand, the proposal potentially could create new opportunities for insurance carriers to offer supplemental coverage or alternative policies that complement the public program. Insurance carriers also could offer policies that are specifically designed to fill gaps in the coverage provided by the public program. This could help meet the needs of consumers who require more comprehensive coverage.

Ultimately, the impact of AB567 on the availability of long-term care policies from insurance carriers will depend on the specific details of the program’s implementation and how insurance carriers respond to the changes in the market.

One thing is for sure, insurance agents and advisors must have a solution in their portfolio because the train has left the station.

Lloyd Lofton is the founder of Power Behind the Sales. He is the author of The Saleshero’s Guide To Handling Objections, voted 1 of the 11 Best New Presentation Books To Read in 2020 by BookAuthority. Lloyd may be contacted at [email protected].

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Lloyd Lofton is the founder of Power Behind the Sales. He is the author of The Saleshero’s Guide To Handling Objections, voted 1 of the 11 Best New Presentation Books To Read in 2020 by BookAuthority. Lloyd may be contacted at [email protected].