Every day, about 10,000 people in the US turn 65. Researchers estimate that more than half of 65-year-olds in the US will need long-term care in the future. This includes assistance with daily activities like bathing, dressing, and eating at home, in an assisted living facility, or a nursing home.

But long-term care is expensive. 

Nearly three million older Americans need long-term care but can’t access it and millions of older adults rely on family members to supplement professional care. 

The tax system helps some older Americans and their families save money for care through the medical expense deduction and Health Savings Accounts. But these policies largely benefit families with higher incomes. 

Reforming these tax provisions could help ensure more families can access long-term, quality care and help more Americans stay in the workforce.

Which families in the US can access long-term care?   

The prohibitive cost of long-term care leaves many older adults reliant on unpaid care from family members, most often women (PDF). These caregivers provide an average of 18 hours of care per week, often face physical, emotional, and financial strain, and struggle to stay in the workforce. For low-income families and families of color, this unpaid caregiving work can exacerbate disparities in employment, income, and wealth (PDF).

The medical expense deduction largely benefits families with high incomes

The medical expense deduction can help taxpayers who itemize deductions on their tax returns pay for qualifying medical expenses. However, the overwhelming majority of taxpayers (90 percent) don’t itemize. Most taxpayers take the standard deduction, meaning a set dollar amount is deducted from their taxable income. Families with higher-incomes families are significantly more likely to itemize, since their deductions can reduce their taxable income more than the standard deduction. 

If you itemize your taxes, you can only deduct medical expenses exceeding 7.5 percent of your income. If you earn $80,000 in income, you would have to spend over $6,000 to qualify for the deduction. Lowering the 7.5 percent threshold could help more families claim the deduction; a 2017 estimate found that could cost $85 billion over ten years. 

To increase the number of eligible families, policymakers could also make the medical expense deduction “above the line” or available to everyone, even those who take the standard deduction. This would allow filers at all income levels to subtract medical expenses from their taxable income.

Health Savings Accounts deliver some benefits, but those mostly go to people with higher incomes

Another way the tax system can help families reduce their medical expenses is through Health Savings Accounts or HSAs. People with high-deductible health insurance plans can use HSAs to save pre-tax dollars for healthcare expenses, including long-term care. An employer sets aside part of a person’s paycheck into an HSA before withholding taxes, reducing the employee’s income that can be taxed. Any funds saved in the account grow tax-free, and the account holder can make tax-free withdrawals to pay for eligible medical expenses.

However, HSAs are used by a small share of families. Taxpayers with incomes over $500,000 are far more likely to contribute to HSAs than middle- or low-income earners. The 36 million HSAs reported in 2023 were predominantly used by higher-income individuals. 

To help more families afford long-term care, policymakers could allow those without high-deductible insurance to contribute to an HSA. They could also consider providing a tax credit for HSA contributions instead of a deduction, similar to the Retirement Savings Contributions Credit (Saver’s Credit). 

Changes to either policy could be costly. 

In 2024, the medical expense deduction cost the federal government $11.2 billion. It’s expected to cost $20.9 billion in 2026. Health Savings Accounts cost the federal government about $12.6 billion in 2023. For context, the charitable deduction cost about $55 billion in 2024, while excluding from tax employer-provided health insurance cost about $200 billion.