LTC Financing Needs Urgent Action

Published April 1, 2004

Managing Editor’s note: The Bush administration’s 2005 fiscal year budget proposal would allow taxpayers–even those who do not itemize–to deduct from their income tax returns any payments for long-term care insurance premiums. The proposal provides an additional personal exemption to home caregivers of family members with long-term illnesses.

Encouraging personal responsibility for long-term care financing, as the Bush proposal does, will become increasingly important as the nation’s population ages. According to recent estimates, the U.S. population in 2040 will include more than 12 million people over age 85–more than three times the number who will hit that milestone in 2004. Today, the annual cost for a year of nursing home care varies by region from $51,000 to $65,000. Policy analysts estimate that cost will reach more than $200,000 by 2030.

Nearly 40 percent of Americans will need some form of long-term care during their lives–but few plan for its cost. Many think Medicare pays for extended long-term care expenses … but it does not!

We need to help families secure access to the long-term care their loved ones need, not break the backs of our kids to pay for it. If we continue to rely on publicly financed programs like Medicaid to pay for nursing home services, the resulting tax levels–borne by our descendants–will be unsustainable.

We have public (Social Security) and private retirement security programs, and public (Medicare) and privately financed health care insurance. The need to supplement publicly financed long-term care with privately financed options is acute.

Because no one is immune from aging or disability, we all should have some plan to finance a long-term nursing home stay or extended period of home health care. Many of us have had to provide long-term care for an elderly parent or relative and are all too familiar with its costs.

For several years now, I have introduced legislation that would make long-term care insurance more affordable. This measure, endorsed by the AARP, provides tax deductions for purchasing long-term care insurance and tax credits to help offset the cost of providing care to a loved one at home. A tax credit for expenses incurred by care-giving families would help those caring for parents or disabled children at home bear the extra costs.

High Cost of Aging

But the real goal of this bill is to stimulate low-cost policies that young people can buy and let the interest grow over many years. These polices could guarantee three years of nursing home or home care services if they need it–without having to spend down to poverty! Long-term care has the potential to wipe out a senior’s retirement savings. As America’s population has gotten older, seniors are living longer with multiple, chronic health problems that require more years of expensive long-term care.

Americans spent approximately $33 billion on long-term care in 2000, and costs are estimated to rise five-fold over the next 30 years. The government is currently the predominant payor of long-term care costs, spending more than $75 billion annually. Faced with this demographic tidal wave of aging baby boomers, we must change the way we finance long-term care so that it is fairer and more effective.

Budgets are tight for individuals, too. Currently, average annual long-term care expenses for an individual are about $51,000. How can most American families afford that high cost for even one year? We need to help families plan how to finance the long-term care their loved ones may need. More importantly, we need to allow families to do so without impoverishing themselves to qualify for assistance.

Sadly, if you have a 10-year-old child today, in 20 years when that child is starting a family, buying a house, and depending on a strong economy for a good job to provide an education for their own children, three-quarters of all federal revenues will have to go to fund services for people over 65 years of age. Three-quarters! This places an unbearable tax burden on your 10-year-old child in just 20 years!

Must Get Started

One dramatic change we can make is to shift the $75 billion in tax dollars now spent on long-term care to insurance-based financing. By each taking a modest responsibility–more modest the younger you are–we can lift the burden of the baby boomers’ long-term care from the shoulders of our children.

We must get started. Changing the law doesn’t change the world overnight, but changing the law now can get these policies moving and foster the development of policies appropriate for young people.

The problems we face today are bigger and more daunting than in earlier eras. The largest retiree population, coupled with the smallest workforce due to the declining birth rate, poses many challenges–and clearly denies us the right to close our eyes to the looming crisis.

Congresswoman Nancy Johnson (R) is serving her 11th term in the House of Representatives. She represents Connecticut’s Fifth District and is a member of the House Ways & Means Committee. This article has been edited for space considerations. The full text was originally published in the February 2004 issue of HIU – Health Insurance Underwriter, a publication of the National Association of Health Underwriters.