States May 'Tax' You if You Don't Have LTC Insurance.

Read Time: 6:54
Published: Sep 9th, 2021
States May 'Tax' You if You Don't Have LTC Insurance.

There may be nothing that robs the humanity of a person more than dementia. People with dementia experience short and long-term memory loss. Plus, people with dementia experience changes in thinking, reasoning, behavior, and mobility difficulties. Your loved one may look like the person you knew for a long time, but they no longer are that same person. The memories we all form over decades of a lifetime start to erase away. 

The World Health Organization (WHO) reports that about 55 million people are living with dementia today. Aging and longevity will increase this number in the decades ahead. WHO expects by the year 2030 that 78 million will have dementia; by the year 2050, the number should reach 139 million people worldwide

With growing demand for long-term health care, Washington State is now taxing people that don't own a Long-Term Care policy. Your state may be next.

Elderly Not Only Ones Struck by Dementia 

Aging is the biggest known risk factor for dementia; however, WHO says it is not an inevitable consequence of biological aging. In addition, age is not the only factor of dementia risk. Young-onset dementia (symptoms before the age of 65 years) accounts for up to 10% of cases. For example, Frontotemporal dementia (FTD) often hits individuals in the prime of their lives. FTD often changes behavior in a way they no longer act like the person you once knew - FTD – Robbing Those Under 60 of Their Very Essence | LTC News.

The Alzheimer's Association says dementia is a broad term used to describe a person's decline in mental ability severe enough to interfere with daily life. Alzheimer's is the most common cause of dementia.

"Dementiarobs millions of people of their memories, independence, and dignity, but it also robs the rest of us of the people we know and love," said Tedros Adhanom Ghebreyesus, WHO director-general.

Long-Term Care Differs by Country

Some countries are offering long-term health care services to their populations. In some cases, it is a state-sponsored Long-Term Care Insurance plan. Others include a combination of public and private insurance, and still, others either have public welfare programs or no programs at all. 

In the United States, Medicaid is the largest payor of long-term health care services. To qualify for Medicaid, a person needs little or no income and assets. Those with Alzheimer's or other forms of dementia will need supervision and additional assistance with daily activities. 

In the U.S. Health Insurance & MedicarePay Little Toward DementiaCare

Medicareand other forms of health insurance will only pay for a limited amount of skilled long-term care services (typically 100 days). However, most long-term health care services, including supervision for dementia, are considered 'custodial care' and not covered by these health insurance programs.

Private Long-Term Care Insurance is available in the United States and other countries, including Canada. LTC Insurance will pay for all types of long-term care services and supports. Dementiais one of the most common reasons people use their LTC Insurance benefits. In 2020 the top insurance companies in the U.S. paid over $11.6 Billion in benefits to policyholders.

Partnership Long-Term Care Insurance is a federal, state, and private partnership offering policyholders additional asset protection - What is a Long-Term Care Partnership Policy? | LTC News. Even with a smaller policy, a policyholder can have a substantial amount of asset protection. 

States Taxing You if You Don't Own LTC Policy?

Washington State is now taxing individuals who do not own a Long-Term Care policy. The tax is on 100% of income for adults aged 18 and older. Unless a person owns an LTC policy, they must pay the tax. In return, they are eligible for $36,500 in long-term care benefits, which would not result in very much care as Washington is one of the most expensive states in the U.S. for long-term health care - Washington Long-Term Care | LTC News.

There are many states which will follow. An LTC NEWS survey shows as many as 16 states are actively talking about such a tax, with a few, Oregon, California, and Minnesota the closest to having legislation in place. 

Many experts suggest that some of these states may not have an extended 'opt-out.' period - meaning that if you don't own a policy when the tax becomes law, you may not have any period of time to purchase coverage to avoid the tax. Since the state-provided benefits are not expected to be very meaningful, you could be in a situation of paying the tax and buying LTC Insurance at the same time.

LTC Insurance Means Choice of Quality Care

Whatever the motivation you may have for purchasing insurance, having a plan to address the costs and burdens of aging is critical for both your family and finances. Long-Term Care Insurance gives you the choice of quality care options, including care at home.

Many people find themselves having an adult child becoming their caregiver. The number of family caregivers in the United States increased by 9.5 million from 2015 to 2020 and now encompasses more than 53 million Americans - Unpaid Family Caregivers Now Total 53 Million People | LTC News.

Most of these unpaid, untrained, and unprepared family caregivers must interrupt their normal lives - careers, families, and friends - to provide the care for their parents, which could go on for years. The stress and anxiety are hard to comprehend unless you have been in that role yourself.

Long-Term Care Costs Rising with Increasing Demand and Labor Costs

The cost of long-term care services and supports vary depending on where you live. For example, in Peoria, Illinois, three years of in-home care today averages over $153,000. The same amount of in-home care in twenty-five years is expected to run about $356,000 Illinois Long-Term Care | LTC News. Assisted living, memory care, and nursing home costs are more expensive, and some people will need time in a facility following in-home care. For some people, this could mean more than $750,000 of costs or more in the future.

Compare Peoria, Illinois, with Peoria, Arizona. The costs in Arizona are more expensive than Peoria's counterpart in Illinois Arizona Long-Term Care | LTC News. Considering that Arizona is a popular retirement location, people planning on relocating should consider the costs of care where they live now and where they may relocate to in the future - Cost of Care Calculator - Choose Your State | LTC News.

People Need Extended Care for Many Reasons - Not Just Dementia

There are many reasons people need help with daily living activities other than dementia. We all experience declining health as we get older. Our bodies deteriorate as well, in addition to the cognitive decline many people will suffer from in the decades ahead. 

Preparing families and finances before retirement, generally in your 40s or 50s, has been the norm. However, if you live in states that may consider the tax, you may want to act now regardless of your current age.

In addition, some very high-income families will find it critical to obtain Long-Term Care Insurance because of the financial impact of the tax.

Be Sure LTC Policy Meets Federal Guidelines

Only tax-qualified Long-Term Care Insurance will work to avoid any future tax. Be sure any policy you consider meets the federal guidelines under Section 7702b of the federal code. A licensed and experienced Long-Term Care Insurance specialist can guide you - Work With a Specialist | LTC News.

You will want to avoid financial advisors or general insurance agents, especially if your state is considering the tax. Specialists will generally work with the top companies, understand underwriting rules, policy design, claims, and which policies meet federal guidelines. 

Aging happens. The old saying that there are only two things you cannot avoid in life - death and taxes - may now have to add a third - long-term care. 

Most of us want to age in our homes and try to avoid a facility. Most of us don't want to place a burden on our families. Most of us want to avoid having to pay more taxes. 

Nobody wants to suffer from dementia or other problems related to declining health and aging. But again, aging happens. Being prepared will give us the tools to be ready.

About the Author

Linda is a freelance writer interested in retirement planning, health and aging.

Editor's Note

Affordable Long-Term Care Insurance will give you the tools necessary so you can enjoy your choice of quality care, including in-home, when you need the care. The guaranteed tax-free benefits will safeguard income, assets, lifestyle, and legacy. 

Plus, if your state enacts a tax, you can avoid the tax as well. There are also some tax incentives available when you own an LTC policy.

Planning Tools Available on LTC NEWS

You can compare the major insurance companies that offer Long-Term Care Insurance products here - Top Insurers for Long-Term Care Insurance | LTC News.

The Ultimate Long-Term Care Guide is an outstanding read to help you get a good overview of the topic area. There are also available tax incentives. See if these tax incentives are helpful - Long-Term Care Tax Benefits Guide.

Find all the resources on LTC NEWS - Resources for Long-Term Care Planning | LTC News.

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Benefits of Reverse Mortgages

There are many people today that have much of their savings invested in their home. With today's reverse mortgages, you can use the money in your home to fund a Long-Term Care Insurance policy, add retirement income, or even pay for in-home care if you need care now. 

Learn more now - Reverse Mortgages | LTC News.

Looking for Quality Caregivers? Need Help Filing an LTC Insurance Claim?

If a loved one already needs in-home care or owns a Long-Term Care Insurance policy and needs assistance filing the claim, LTC NEWS is here to help.

LTC NEWS provides free assistance with no obligation - Filing a Long-Term Care Insurance Claim | LTC News. You can also help find caregivers and get recommendations for a proper care plan, whether a person has a policy or not.

LTC News Contributor Linda Kople
Linda Kople

Contributor Since
October 31st, 2017

Freelance writer interested in retirement planning, health and aging.

About the Author

Linda is a freelance writer interested in retirement planning, health and aging.

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