Affordable long term care insurance for everyone?
Learning from the state of Washington
September 1, 2021 | View PDF
What are the chances that you will need services like these at some point in your life?
- nursing home
- assisted living
- home health care
- homemaker and chore services
It turns out that the chances are quite good. The WA Cares Fund – a new program in the State of Washington, discussed below -- estimates that 7 in 10 Washingtonians over the age of 65 will need long-term services and supports within their lifetimes. That seems to parallel comparable national estimates.
More to the point, these services can be extremely expensive. For example, here in Alaska the average monthly cost of homemaker or home health aide services runs around $5,300. The average monthly cost of a room in a nursing home facility is – I hope you are sitting down for this – about $37,000. Yikes! (Source: Genworth.com) Medicare generally won’t pay for these kinds of services. Medicaid will, but only if you “spend down” into near-poverty.
Theoretically you could purchase commercial long term care insurance, but that is usually quite expensive, not to mention full of exclusions and loopholes and conditions that can trip you up. National average long term care insurance rates for one year for age 55 are $1,700 for a single male, and $2,675 for a single female. Not hard to see why only about seven million people in the United States have long term care insurance, despite the fact that many tens of millions are likely to need these expensive services at some point.
This is all rather gloomy, but I would like to direct your attention to a most interesting and hopeful development in the state of Washington, the WA Cares Fund, with the official tag-line, “Ensuring all Washingtonians have access to affordable long-term care when they need it.” Several other states including California, Maine, Vermont, Michigan, Illinois and Minnesota are considering adopting similar programs in the coming years. Perhaps it could also serve as a model for Alaska. Let’s take a closer look.
Washington state is the first in the nation to develop a way to make long-term care affordable for all workers in the state. The WA Cares Fund is a universal long-term care program that works like Social Security, where all workers participate and earn coverage over the course of their working life.
WA Cares is self-funded entirely by worker contributions. The premium is 0.58% (your wages x 0.0058). For the typical worker earning $52,075, it is $302 per year. To earn benefits, you must contribute at least 10 years (without a break of five of more years) or have contributed three of the past six years at the time of application for benefits.
Beginning January 2025, each person who is eligible to receive the benefit can access services and supports costing up to $36,500. Note that this is a one-time benefit. It does not repeat annually. It may not sound like a lot, considering how much long-term services can cost, but 20 hours of home care per week for one year costs around $32,000 in Washington state. Moreover, according to AARP, 48% of people who need long-term care need it for only one year or less.
For most people, the state program will be more cost effective than a privately purchased policy. Take a look at this hypothetical example, from the Tacoma News Tribune:
“Tom is 45, earns $100,000 per year and expects to retire at 65. Assuming his income grows by 3 percent per year over his final 20 years of employment, Tom would pay $17,131 in [long term care paycheck deductions]. Since Tom would potentially have access to $36,500 (inflation-adjusted in the future) for eligible expenses, it would make sense for Tom to utilize the state’s program.”
It certainly won’t solve the long-term care problem in Washington, but it is an important first step and national precedent. And I do think it will help ease the burden of long-term care in particular for lower-income families.