As Americans age, their daily medical and non-medical needs become more complex and, by extension, more expensive. Nursing homes cost an average of $82,000 – $92,000 per year, according to Genworth Financial’s 2016 Cost of Care survey, while in-home care provides a more economical option at $46,000 per year. However, families foot the bill for 87 percent of all home care on an industrywide basis according to the 2017 Home Care Benchmarking Study.
Recent data from the U.S. Department of Health and Human Services shows that the annual out-of-pocket cost of caring for an aging loved one is more than double that of caring for a child, and yet Americans aren’t preparing for these impending costs. Further, in today’s rapidly aging society and unstable political climate surrounding healthcare, there are no assurances for how healthcare and long-term care will be supported in the future. Traditional government healthcare programs and our current system of institutional care simply cannot meet the needs of the tens of millions of older Americans who will require care.
Given this uncertainty, Americans will have to assume personal financial responsibility and start saving for their future care needs. Policymakers should explore options to provide tax relief for senior care expenses and encourage saving for care, for example:
- Tax Credits and Tax-Advantaged Savings Vehicles: Availability of tax credits and tax-advantaged savings vehicles will help seniors and their families pay for care and incentivize them to set aside money for future care needs. Examples include tax credits, which alleviate the financial burden on seniors and/or their loved ones who are incurring a wide range of long-term care expenses, and tax-free savings accounts (like 529 plans to encourage saving for a child’s college education on an ongoing basis).
- Health Savings Accounts and Creative Financing: Recognizing the expanding care continuum as the population ages, the options for paying for that care should also be expanding. An employee with a high-deductible health plan may qualify for a health savings account (HSA), which permits the employee to save pre-tax dollars for qualified medical expenses. Including senior care as a qualified medical expense eligible HSA reimbursement, as well as creative financing models to help pay for long-term care, will help individuals take personal responsibility for care while alleviating burdens on the overall healthcare system.
- Employer Benefit Incentives: Flexible Spending Accounts (FSA), like those provided by many employers for healthcare and child care expenses, allow employees to set aside pre-tax dollars annually for use on qualifying expenses. They provide a tax-free benefit to help families manage these rising costs. Expanding such a savings tool for senior care, whether or not the senior lives with family members, can help incentivize saving and serve as an attractive benefit as organizations strive to become employers of choice.
Key Legislation to Address Cost of Care:
- HR 6813: HR 6813 is a proposed amendment to the Internal Revenue Code, which would allow distributions from Health Savings Accounts (“HSA”) for qualified home care. Within HR 6813, qualified home care is defined as 3 or more services from the following list: (a) assistance with eating; (b) assistance with toileting; (c) assistance with transferring; (d) assistance with bathing; (e) assistance with dressing; (f) assistance with continence; and (g) medication adherence. Learn more about this legislation introduced in the House.
- the AGE Act: The Americans Giving care to Elders (“AGE”) Act is a proposed amendment to the Internal Revenue Code which would allow family caregivers to qualify for a tax-credit (up to $6,000 in a taxable year) to offset elder care expenses. Learn more about this legislation introduced in the Senate.
- Credit for Caring Act: The Credit for Caring Act is a proposed credit providing tax relief to caregivers for 30 percent of the cost of long-term care expenses that exceed $2,000, up to $3,000 in a taxable year. Caregivers who incur expenses for providing care to a spouse or other dependent relative with long-term care needs, and who has earned income for the taxable year more than $7,500, will be eligible for the credit. Learn more about this legislation introduced in the House and Senate.