Bipartisan bill would create catastrophic LTSS insurance

Rising long-term care costs can upend even the best retirement plans. But a bipartisan bill could significantly cut the number of households at risk of running out of money in retirement, new Morningstar research shows.

If signed into law, the Well-Being Insurance for Seniors to be at Home (WISH) Act would establish a federal catastrophic insurance program for long-term services and supports (LTSS) — including services like in-home care, assisted living and nursing home facilities.

The proposal would offer benefits to individuals with ongoing LTSS needs after a waiting period that ranges from one to five years, depending on income history. Lower earners would qualify sooner, while higher earners would wait longer. Benefits, administered by the Social Security Administration, would begin at retirement age.

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The bill, introduced by Reps. Tom Suozzi and John Moolenaar, does not set a fixed benefit amount. Instead, it instructs the secretary of health and human services, in consultation with the Department of Labor, to base the monthly benefit on the median cost of six hours of paid personal assistance per day in the U.S., adjusted for wage growth in the long-term care sector. Staff working on the measure estimate that amount would be roughly $4,000 per month in today’s dollars.

To qualify, an individual must have at least six quarters of payroll tax contributions during the applicable base period, which starts in the first quarter of 2026. Until someone accrues 40 quarters of coverage, their benefit would be prorated. For example, a person with 20 quarters would receive half of the full benefit.

Using a proprietary model of U.S. retirement outcomes to simulate the act’s impact, Morningstar researchers found that, among Generation Z, millennial and Generation X households projected to qualify for WISH benefits, the shortfall rate decreased by more than half, from 42% to 19%.

“If enacted, the WISH Act could be one of the most significant shifts in retirement risk management in decades, as our analysis shows that the proposal could meaningfully improve retirement outcomes for those with catastrophic LTSS needs,” the researchers wrote.

Who stands to benefit?

Researchers simulated the act’s impact across different demographics, including age, race, gender and income, to better understand who would benefit from the passage of the WISH Act. 

Among households projected to qualify for benefits under the act, Gen Zers, millennials and single Americans — women especially — saw some of the largest percentage point declines in projected retirement shortfalls.

Without the WISH Act, 58% of single women who would qualify for WISH benefits are projected to exhaust their retirement savings due in part to LTSS costs. That figure drops 30 percentage points, to 28%, when benefits from the WISH Act are applied. But even with WISH benefits, single women would still run out of money in retirement nearly twice as often as men.

“This is primarily due to the lower levels of savings that single women have than single men, which limits how much the WISH benefits can improve retirement-income adequacy,” the researchers wrote.

The biggest gains were seen among middle-income households. Among Gen Z in the second income quartile, the share facing a retirement shortfall fell from 61% to 25% — a 36-point drop. Millennials in the same quartile saw a similar decline, from 60% to 26%, or 34 points.

While middle-income households saw the biggest benefits from the act, even households in the top quartile of earners saw notable drops in the projected shortfall rate thanks to WISH benefits.

Wealth is no guarantee against a long-term care catastrophe

Even among wealthy households, advisors say LTSS costs can quickly sneak up on clients without a proper plan in place.

“Most people are not educated on long-term care until they go through it, and that’s the problem,” said Kris Etter, founder of Beacon Financial Planners in Houston, Texas.

Misconceptions about long-term care can exacerbate the problem. In a survey from the Employee Benefit Research Institute, a significant portion of people underestimated the true costs of long-term care. Many also said they believe that Medicare will cover long-term care costs, a common misconception about the program.

Simply relying on assets to self-insure can be an appealing prospect for wealthy clients who want to avoid extra premiums, but Etter said it can present its own complications.

“I’m the trustee of some accounts, and you know, the last thing I need to be justifying to heirs is why I’m buying or selling something to pay for mom and dad’s long-term care needs,” Etter said. “You know, kids are great for the most part, but there are some bad stories out there, and they would want to put mom and dad in a cheaper place, or maybe not have the best care, and keep the inheritance at a higher level.”

“If there’s a bucket set aside for Mom and Dad that’s strictly for long-term care and only long-term care, then the heirs don’t have anything to say about that,” Etter added. “You know, it’s already taken care of. Mom and Dad did that while they were of sound mind, and the estate is preserved so that the next generation can inherit whatever they want them to.”

Creating a dedicated bucket doesn’t necessarily mean purchasing long-term care insurance, Etter said. But it does require having some sort of long-term care plan. Often that takes the form of more “hybrid options,” he said — products like life insurance policies and annuities with long-term care riders.

“It’s not long-term care insurance we talk about anymore,” Etter said. “It’s long-term care planning. That’s what it is. ‘What’s your long-term care plan?’ Not, ‘What type of long-term care insurance do you have?'”