As the nation ages, the demand for long-term care and support services will continue to grow. Nearly 70% of people who reach the age of 65 will need care at some point. Of those who need long-term care, about 40% will need caregiving services for at least two years.
The nature of the care and services that older adults need varies and often changes over time. Seniors generally prefer to age in their own homes. They often do so successfully with caregiving provided by family members or service providers. They may also benefit from day facilities that give family members a break from caregiving.
Some seniors may be better served by residential care, such as an assisted-living facility. Dementia patients may need the specialized services provided by a memory care unit. Nursing homes provide housing for patients who require medical monitoring and around-the-clock care.
Paying for Long-Term Care
All long-term care options carry a price. Unpaid family members typically make financial sacrifices to serve as caregivers. While estimates vary, one recent Cost of Care survey found that the median monthly cost of an assisted-living facility is $4,500, while the median monthly cost of nursing home care ranges from about $8,000 for a semi-private room to $9,000 for a private room.
Paying for long-term care can be difficult. Some people purchase long-term care insurance before they reach their senior years. Purchasing an annuity may also provide cash flow when a senior reaches an age where long-term care is needed.
The reality is that many people lack the resources to purchase the kind of insurance or annuity that will fund long-term care. Since Medicare does not generally cover long-term care, seniors may be forced to fall back on Medicaid. Because Medicaid is available only to people who have limited income and assets, most people need to spend down their assets before they qualify. In many cases, retirement benefits from Social Security make the recipient ineligible for Medicaid.
The Washington Plan
The state of Washington recently implemented a plan to address the financing of long-term care. Washington increased its state payroll tax by 0.58%. The new tax took effect last month. The tax revenues will go to the WA Cares Fund.
After contributing for ten years, individuals will be entitled to a long-term care benefit if they need care with three or more activities of daily living (ADLs). People who were born before 1968 may become eligible for the benefit more quickly. Some people may become eligible in as little as three years.
In general terms, Washington defines ADLs as mobility, eating, taking medication, personal hygiene, and cognitive functioning. Thus, a person who needs help getting out of bed, taking a bath, and preparing meals would probably qualify for the benefit.
Depending on the contributions that an individual has made to the fund, the benefit has a lifetime value of up to $36,500. That amount will rise with inflation. Washington estimates that the benefit will pay for the full care needs of about a third of individuals who require long-term care. People whose expenses exceed the benefit limit will need to meet their needs from another funding source, including savings, insurance, or Medicaid.
The benefit is paid directly to providers, in the same way that Medicare pays doctors for medical care. Among other services, the benefit can be used to pay for:
- in-home caregivers (including family members)
- assisted-living facilities, nursing homes, and other residential care
- meal delivery
- home safety improvements (such as grab bar installation)
- wheelchairs, walkers, and other assistive devices
- respite care
Unlike Medicaid, the benefit does not condition eligibility on a “spend down” of assets. For people who have long-term care insurance, the benefit can be used to cover expenses during a waiting period or after the insurance benefit has been exhausted.
Advantages and Disadvantages of the Washington Plan
Only Washington residents benefit from the WA Care Fund. A similar federal program would be preferable to a state-by-state patchwork of long-term care benefits. Unfortunately, Congress has shown little interest in expanding Medicare to provide uniform long-term care benefits to every American.
The WA Care Fund benefits are not portable, so a Washington resident will no longer be eligible after moving to another state. The payroll tax that funds the benefit will make it slightly more expensive to live and work in Washington, although state tax rates are already highly variable. Since the average annual tax contribution is only $291, few workers are likely to think the contribution is onerous compared to the return on that investment they will receive if they eventually need long-term care. Whether the benefit and its associated tax will cause people to move into or out of Washington is difficult to predict.