The Advisor's View of Long-Term Care Planning

How will the new federal tax and budget deals affect LTC Insurance?

Posted by Tom Riekse Jr | Feb 20, 2018 12:04:58 PM

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The combination of increased federal spending and tax cuts could have a substantial impact on the cost of home health care and long-term care insurance. Here are some of the ways in which the changes could effect how advisors discuss LTC planning with clients.

  1. Tax cuts fueling the economy could lead to higher inflation, including home health care. With unemployment lower and an aging demand for care, wage inflation will possibly pick up in the next few years. Already the latest Genworth Cost of care data shows a 5% increase in the home health care costs in 2017 compared to 2016. With a squeeze on new immigration labor (who provide a lot of the home care)  expect these costs to increase even more in the future.

  2. The new budget deal reduces future government spending on Medicare home health care. The recently passed Bipartisan Budget Act of 2018 includes changes to the way home health care is paid by Medicare. Among the changes are modifying the time period home health care agencies charge for services from 60 days to 30 days, allowing Health and Human services to cut home health care benefits if providers have been overbilling, and allowing HHS to view the medical records of home care providers accepting Medicare. According to the Congressional Budget Office, this will result in and reduction of $3.5 billion in payments for Medicare home health care between 2018 and 2027. With this type of regulatory oversight, it's not surprising that some home care providers choose to not participate in the Medicare and Medicaid programs and accept private pay only - including LTC Insurance benefits.

  3. Increased budget deficits may lead to higher interest rates - and help stablize insurance carriers LTC reserves. The round of tax cuts and increased spending on the military mean there is a good chance annual United States budget deficits could be over one trillion per year beginning in 2018. It's simple economics - higher debt levels may lead to higher interest rates paid on long-term debt, the types of investments insurance companies use for products like long-term care.  Already, 10-year treasury bonds are getting closer to 3% . Higher investment returns will also encourage carriers to invest in the long-term care business and possible reduce new premiums in future for products.

Adviosors projecting future care costs may want to increase the estimated cost of care. Remember, long-term care can be paid by savings, government programs or private insurance.  Most people will rely on the first two, while those who obtain standalone or linked life/ltc plans will have more options and flexibility in the future.


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Written by Tom Riekse Jr

Tom Riekse, Jr., ChFC, CEBS is the Managing Director of LTCI Partners. He has been working in the long-term care insurance business since 1991 with an emphasis on communicating the value of LTC planning to advisors, employers and consumers. He has primary responsibility for all marketing and technology initiatives at LTCI Partners, and has worked closely with carriers and vendors to make LTC Insurance easier to sell and enroll. Tom received his undergraduate degree in from Hope College, Holland Michigan. He subsequently achieved his MBA at the University of Illinois at Chicago, with a concentration in finance and marketing. He holds the Certified Employee Benefit Specialist designation from the International Foundation of Employee Benefit Plans and the Wharton School and his Chartered Financial Consultant from the American College.

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