Get Ahead of the California AB 567 Long-Term Care Curve

Eighty is the mean age for the start of long-term care insurance claims, according to the American Association for Long-Term Care Insurance.

Without coverage, your client's out-of-pocket expenses for long-term care could be more than $54,000 per year.

Everyone agrees that the risk of long-term care has significant financial repercussions for users of these services and their families.

We know that private LTC insurance gives you the control to have coverage that fits your needs and provides families with individual solutions.

Moreover, private LTC plans have options and benefits that a government program almost certainly will not have, like inflation protection, return of premium or death benefit if LTC funds are not used.

Washington state has a plan in place that, starting July 1, will tax anyone 18 and above who is working, and who did not have private LTC insurance in place by Nov. 1, 2021, for a public long-term care benefits program.

AB 567 proposes to tax California residents' W-2 income to pay for a public long-term care insurance program in California.

Here are some potential tax pros and cons of the AB 567 approach, as well as how it might affect the availability of long-term care policies from insurance carriers.

Tax Pros

Deductible contributions: Contributions to the long-term care insurance program may be tax-deductible. That would reduce an individual's taxable income.

Tax-Free benefits: Any benefits received from the long-term care insurance program would be tax-free.

Tax Cons

Increased tax liability: California residents would face increased tax liability, because a percentage of their W-2 income would be diverted to the state long-term care insurance program.

Limited tax savings: Access to the tax deductions may be limited to those who can itemize deductions on their tax returns. Many lower-income individuals do not have enough deductions to itemize.

The Impact on Private Long-Term Care Insurance

Reduced demand for private policies: Some individuals may choose to enroll in the public long-term care program rather than buying private insurance.

Market disruption: If the new public long-term care program reduces demand for private insurance, that could reduce the availability of private policies or make them more expensive.

Reduced coverage: The public program may provide limited coverage, which may not be enough for some individuals who are planning for long-term care needs. Those individuals may seek additional coverage from private insurers.

The actual impact of the AB 567 program on the availability of private long-term care insurance would depend on the implementation details, and on how insurance carriers choose to respond to the new market conditions created by the program.

By getting ahead of this early, insurance agents and advisors can prepare themselves to help consumers avoid any new coverage restrictions or policy requirements that insurers impose in response to the start of a public program.

Especially in California, where the population is five times as large as Washington state, you can anticipate that a run on private long-term insurance would substantially change or hurt the availability of private insurance.

Lloyd Lofton is the founder of Power Behind the Sales and the author of "The Saleshero's Guide To Handling Objections."