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

What You Need to Know

Some clients might spend more on taxes, and some might spend less.
Some might want more coverage than a public program offers.
When clients shop for private coverage, they could run into problems.

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.