Public Long Term Care Insurance Programs

There is an increasing government effort to create public programs to solve the pressing long term care conundrum. This article will examine the causes of this effort and progress to date.

The main causes are twofold and are well known. First, the need for long term care protection is steadily increasing. This is because our population is aging and the need for care grows as one ages and one’s health deteriorates. Millions of Americans have experienced how pervasive, threatening and growing long term care costs have become, and hope that the government can protect them.

Second, the costs of care are very high and are rising faster than general inflation in the economy. This has made meaningful long term care insurance unaffordable for all but the very wealthy Americans. Very few Americans have protected themselves, and most are concerned with other pressing financial concerns. Long term care cost has thus become the greatest threat to retirement plans.

This has resulted in general anxiety of Americans about their future and a growing popular movement for the government to provide a solution. The movement was initially directed at the Federal level by the long term care industry as its long term care insurance became more expensive. This resulted some ten years ago in Congress enacting the Class Act, creating a federal long term care insurance program. However, the Class Act was doomed due to lack of funding and was never administered. That unfortunate experience has been followed by scores of bills introduced in the Congress which have gone nowhere. At this point, with many other budgetary needs, a federal long term solution to the problem is unlikely for many years, if at all.

The insurance industry grossly underestimated the costs of their insurance plans and alarming rate increases and higher rates for new policies occurred. This in turn drove new sales down by as much as 90 percent from previous levels. The industry looked for more profitable ways to offer long term care insurance and promoted linked benefit products with various riders which provided long term care protection. These solutions have had some acceptance, especially with employer plans, but otherwise, they are normally only purchased by the very wealthy Americans.

Over time, the individual states have become concerned about the increasing costs of long term care in their Medicaid programs and the impact on their budgets. They looked at alternative ways of funding the care. They began to think of ways that the government could adopt a program where citizens would save for long term care costs even though most citizens did not have the will to do so on their own.

The State of Washington, with its high costs of care and its liberal governor, Jan Inslee, became the first state to mandate a public long term care insurance program. On July 1, Washington will impose a mandatory payroll tax of .58 percent to fund their public program, providing a small long term care benefit of $36,500 which will rise with the increases in the Washington State consumer price index.

The concept is to provide a small long term care benefit and to encourage citizens to buy wrap-around private long term care insurance. This would protect citizens and save the state many millions of future Medicaid dollars.

But the more one examines the details of a public program, the more complex are the issues that emerge. The first major issue was that no one likes to pay taxes. Washington’s citizens generally objected to the tax and were allowed a very limited time period to purchase private long term care insurance and opt-out of the tax. About one-seventh of those eligible, almost 500,000 citizens, opted-out, purchasing minimal plans which eventually may not protect them from the tax if recertification becomes a requirement.

Washington’s implementation was delayed eighteen months while the Legislature considered changes to the program, but most legislative changes have been deferred until next year when more experience will have been learned. Meanwhile, some dozen democratic-leaning states, including the large ones of California, New York and Pennsylvania, are considering adaptations of the Washington Cares Act.

California has been the state that has spent the most time and money to come up with a program, and is being watched carefully by a dozen other interested states. The California Task Force for Long Term Care has met for over a year and must report its recommendations to the Governor and the legislature by the end of 2023.

The Task Force members formed into three distinct groups which differ on the size and cost of the benefits:

  1. The group of caregivers, who want the maximum benefit design at the greatest cost. These designs could increase payroll taxes by as much as 20 percent over the huge 9.83 percent or more that many Californians currently pay;
  2. The group of two insurance actuaries, who favor less expensive designs, the cost of which could approximate that of the Washington Cares Act; and,
  3. Members of the California Department of Insurance, who said little but were concerned with cost issues and to how expensive a payroll tax percentage could pass in the Legislature and be signed by Governor Newsom.

The result was that the Task Force has proposed five recommended designs, not just one, which are widely different from each other, both in cost and in benefit structure. The Task Force is waiting for the actuarial firm of Oliver Wyman to provide the cost analysis.

Members hope to get employers to pay up to half the cost. This would be counterproductive in my view. Corporations already pay an 8.83 percent income tax in California, and would strongly resist any increase. They would have an even greater incentive than they do now to switch their domiciles to more friendly states where they would pay no income tax at all. Their flight to other states would decrease tax revenues in California. The Legislature won’t allow this to happen.

How robust can California’s program be and still be accepted by the Legislature and its citizens? California is facing a budget deficit of many billions of dollars as it is. I don’t believe that the Legislature would enact a tax rate of 1.00 percent or higher, and may want to approach the .58 percent rate of Washington State if possible.

Thus far, there has been virtually no publicity in California about this proposed program, and it lacks any public interest or support. Members of the Legislature are not yet involved. It is likely in my opinion that another state, maybe Minnesota, will pass a program before California acts.

It is almost certain that California’s citizens won’t be able to opt-out of the program and avoid the tax once the law is enacted. In addition, it’s almost certain that they will be able to opt-out if they have an acceptable long term care insurance plan in place before an opt-out opportunity expires. Keep in mind that if one opts-out of the program, one also opts-out of the benefits of the plan.

Legislation will probably not happen for at least another eighteen months in any state. Agents will probably be able to take advantage for at least one year of this unique opportunity to protect their high-income clients and help them avoid the tax. For those with income of $150,000 or more now, and for those whose income may grow substantially over a period of twenty years or more, I would recommend opting-out of the public plan and purchasing meaningful private coverage. Those with incomes from $100,000 to $150,000 should purchase meaningful private coverage and consider whether or not to opt-out of the public plan.

As an agent, you need to be well informed on the issues and prepared as the situation in your state clarifies to execute a specific marketing plan.

Louis is Chairman of California Long-Term Care Insurance Services, Inc., located in Burlingame, CA. California Long-Term Care is the largest independent specialist long term care insurance agency in California, and is broker for a group of high-producing long term care specialist agents.

Brownstone is also past chairman of the National LTC Network, an association of some twenty-five brokerages nationwide which together place about ten percent of all long term care insurance premium. This production makes the Network the nation’s largest independent distributors of long term care insurance.

He is also very active in the National Association of Insurance and Financial Advisors (NAIFA), the largest and oldest group of its kind in the insurance industry. One of his goals is to revive the California Partnership for Long-Term Care in order to insure more Californians and save the State of California billions of dollars in future Medi-Cal expense.

Brownstone is a native San Franciscan and fourth generation Californian. After graduating from Andover and Stanford, he became an executive in a retail menswear apparel business, Grodins of California. He entered the insurance industry in 1989 and became a long term care insurance specialist in 1991. Louis founded California Long- Term Care Insurance Services in 1997.

Brownstone may be reached by telephone at 650-692-5202. Email: