LTC Insurance and Tax Reform: What will the affect be?

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Tax reform was a hot topic throughout 2017. Now, with President Trump’s signature on the Bipartisan Budget Act of 2018, it’s time to understand how these sweeping changes to the United States tax code will affect consumers and the LTC insurance industry. To help, Schneider & Shulman Associates has highlighted a few areas we recommend paying attention to as we enter this new chapter in tax reform.

1. Tax Cuts

The goal of tax cuts is to improve the economy by increasing spending. However, tax cuts can also lead to adverse effects, such as higher inflation.

With home health care costs steadily increasing in recent years, and even higher costs expected in the years to come, the new tax agreement may lead to even greater inflation and cost hikes in the home health care industry.

2. Government Spending

The Bipartisan Budget Act of 2018 will change Medicare spending in a number of ways. Updates to how the government pays for some home health care services and nursing home care will likely have the greatest impact on the long term care industry.

Home Health Care Services & Nursing Home Care

  • The payment episode for home health care services will be reduced from 60 days to 30 days.
  • Therapy thresholds will be eliminated altogether.
  • Home health care episode and threshold changes are expected to result in a $3.5 billion reduction in Medicare payments for home health services between 2018 and 2027.
  • The government also plans $1.9 billion in Medicare payment reductions for skilled nursing facilities between 2018 and 2027.

 

3. Budget Deficits

According to The New York Times, the new budget agreement is projected to add hundreds of billions of dollars to the United States’ federal deficits. Oddly enough, this is somewhat of a silver lining for the LTC insurance industry.

As we’ve previously explained, since the 2008 recession, lower interest rates on insurance companies’ investments have led some LTC insurance providers to increase their policy premiums. As the Bipartisan Budget Act of 2018 pushes the U.S. debt level higher, the government may choose to increase these same interest rates that LTC policies hinge on. In this scenario, it would be safe to assume the higher interest rates (and therefore higher returns for insurance providers) will ultimately reduce LTC insurance premiums for future insurance products and consumers.

Interested in Learning More About Long Term Care Insurance?

Schneider & Shulman Associates is eager to help – please contact us today to speak with one of our expert long term care insurance advisors!