Why are long term care costs an afterthought for public policy?
According to research from PwC, the average lifetime cost of formal long term care is $172,000 for one individual. And while some may certainly experience a lower amount, for a good number of Americans the cost can be multiples of that amount. Genworth Insurance estimates that 7 of 10 Americans will need long term care in their lifetime.
In insurance-speak, long term care costs refer to the costs that a person incurs when they are unable to perform the “activities of daily living” (ADL): eating, bathing, dressing, using the bathroom and “transferring” (such as getting in and out of bed). As a practical matter, Americans meet this challenge by relying on family members as care givers. And by “family members”, I mean women. According to AARP research, “the average caregiver is a 49-year-old woman who works at least part time and has been taking care of an aging parent for several years.”
There is a clear public policy imperative here: absent the ability to afford professional caregivers, women leave the workforce in their prime earning years to care for aging parents, exacerbating the gender wage gap. The secondary effect is that women who are out of the workforce are not contributing to their retirement savings, and in some cases draining their savings to meet their living expenses while they are out of the workforce. This is a phenomenon I have seen repeatedly as a financial coach.
Unfortunately, our mid-century Medicare program barely acknowledges this 21st century burden. The sole aspect of long-term care covered by Medicare is nursing home care, and only up to 100 days. Medicaid, the public health insurance program for low-income households, actually does a better job in this respect, including in its coverage non-medical costs associated with the aforementioned ADLs, and care can be at home or in a facility. With that said, the adequacy of Medicaid coverage is highly variable across different states. In short, no one would wish to be poor just so that their long-term care costs could be covered.
Middle income households particularly are left in a classic bind. Not rich enough to pay for long term care out of their savings, but too wealthy to rely on Medicaid. Long term care insurance should be the answer, however premium rates price out many middle-income households.
Across the political spectrum, there always seems to be agreement around family-friendly policies. Unfortunately, the discussion is often limited to the needs of families with young children. In a myriad of ways, existing tax and spending policies ignore the financial stress of long-term care.
To meet today’s burden, public policy responses could include:
· Expanding Medicare coverage to include the cost of professional home care to assist the elderly with the non-medical expenses associated with long term care. This one step could potentially allow millions of women to remain in the workforce.
· Expanding the “dependent care side” of the Child and Dependent Care Tax Credit (CDCTC). As it stands now, the credit flattens out for incomes over $43,000 and even at that, is worth at most only $1200. Unsurprisingly, according to the Congressional Research Service, the CDCTC is claimed almost exclusively for childcare. The size of the credit should be increased for adult dependent care, and as well expanded to include more types of expenses that are specific to elder care but are currently excluded.
Looking forward, to incentivize households to save for future costs:
· Allow families to use Health Savings Account (HSA) savings to meet long term care costs for either themselves or a family member. The Homecare for Seniors Act (H.R. 6813) in the 115th Congress, by expanding the list of qualified expenses to include those associated with ADLs, was a step in this direction (that sadly faltered).
· Create a federal tax deduction for long term care insurance premiums, as some states already do. Some states recognize that it is in their long-term fiscal interests for their residents to have long term care insurance. As it now stands, these premiums are only deductible as part of the general medical expense deduction (i.e., expenses greater than 10% of income).
Planning for long term care expenses, whether your own or that of a parent, may be the only personal finance task that is even more disagreeable to most people than estate planning. I get that. Perhaps this is why so much of our media and public policy attention is on the more photo-friendly support for families with children, rather than dependent adults, even though this is very often the same family.
Keeping women in the workforce clearly is a priority of the current administration. And while this renewed focus has come about because of urgent childcare needs presented by the current COVID-19 crisis, my hope is that we will not lose this attention post-pandemic.