The California Department of Insurance (CDI) has been conducting in-depth research throughout 2023 and 2024 to address one of the state’s most pressing concerns: the future of long-term care (LTC) and how to fund it. With a rapidly aging population, rising health care costs, and a growing need for long-term services, the CDI’s efforts are focused on finding sustainable solutions. This includes the possibility of introducing a long-term care tax to support these services.

The Growing Long-Term Care Crisis

California, like much of the nation, faces a looming crisis in long-term care. According to recent studies, more than 70% of individuals aged 65 and older will require some form of long-term care at some point in their lives. This care, which includes assistance with daily living activities such as bathing, dressing, and eating, is often not covered by Medicare, leaving many seniors and their families to bear the high costs.

The financial burden of long-term care can be overwhelming. The median annual cost for a private room in a nursing home in California exceeds $120,000, and the average cost for in-home care is more than $65,000 per year. These costs are expected to rise as the population ages, with California’s elderly population projected to double by 2050. Without a comprehensive system in place to help finance these services, many Californians face the prospect of financial ruin.

CDI’s Research and the LTC Tax Proposal

In response to this growing concern, the California Insurance Department, under the leadership of Insurance Commissioner Ricardo Lara, initiated a multi-year research project in 2023 to explore sustainable long-term care funding models. The research examines various approaches taken by other states and countries to create a financially stable system, including the possibility of introducing a long-term care tax.

One key area of study has been Washington State’s WA Cares Fund, the first of its kind in the U.S., which implemented a payroll tax to fund long-term care benefits. California has looked closely at this model, assessing its potential impact and feasibility in the state’s larger, more diverse economy. The CDI has also examined private insurance models, employer-based solutions, and the potential for public-private partnerships.

Proposed LTC Tax: What Could It Look Like?

Though the specifics of the LTC tax proposal are still under development, early drafts suggest that California may adopt a payroll tax similar to Washington’s model. The tax would likely be a small percentage of wages, with exemptions for lower-income workers. Funds collected through the tax would be pooled into a state-run trust fund designed to provide benefits for long-term care services.

Benefits would likely include coverage for in-home care, assisted living, and nursing home services, providing a safety net for Californians who require long-term care but do not have adequate savings or private insurance. The exact amount of the tax and the structure of the benefits are still being discussed, with CDI officials working to balance affordability for workers with the need to generate enough revenue to make the program sustainable.

Public Response and Stakeholder Input

The long-term care tax proposal has sparked debate among stakeholders, including policymakers, insurance companies, elder care advocates, and the general public. While many acknowledge the importance of addressing the long-term care crisis, concerns have been raised about the potential financial burden on workers and employers, especially in an already high-cost state like California.

To ensure transparency and gather input from diverse perspectives, the CDI has conducted several public forums and stakeholder meetings throughout 2023 and 2024. These events have allowed California residents, employers, and advocacy groups to provide feedback on the proposed tax and offer suggestions on how the system could be improved.

The Importance of Planning for Long-Term Care

As the state’s research progresses, one thing remains clear: planning for long-term care is becoming increasingly essential for California residents. With the costs of care continuing to rise and the population aging rapidly, finding a sustainable, long-term funding solution is critical to ensuring that seniors and disabled individuals receive the care they need without facing financial hardship.

The CDI’s research initiative and the proposed LTC tax represent a proactive approach to tackling this issue head-on. By learning from other models and engaging stakeholders across the state, California is working to create a long-term care system that is both equitable and sustainable.

Next Steps

The final results of the California Department of Insurance’s research and the formal proposal for an LTC tax are expected to be released in late 2024. If adopted, the new policy could pave the way for a more secure future for Californians, ensuring that long-term care is accessible and affordable for all.

In the meantime, the CDI encourages Californians to explore their own long-term care options and to stay informed about the ongoing policy discussions. Whether through private insurance, personal savings, or state-funded programs, planning for long-term care is an essential part of securing financial well-being in the later stages of life.

The long-term care tax initiative reflects California’s commitment to addressing the challenges posed by an aging population and ensuring that its residents can age with dignity and security. The next few years will be crucial in determining whether this groundbreaking policy will be the solution to California’s long-term care crisis.