top of page

Should You Be Concerned About California’s Potential Future LTC Program?

Updated: Nov 30, 2023

Short Answer: Not Yet

MANY advisors have contacted us about the impending California LTC Tax. Apparently, their clients are starting to get “do or die” levels of pressure from competing brokers. Let’s set the record straight.

Gavin Newsom designated the CA LTC Task Force to ideate and propose a new statewide care program. (This was largely accelerated by the slapdash program in Washington state.)

The Task Force came up with five potential recommendations presented in a feasibility report in December 2022. (All are under 2 years and the max benefit was $6000/month.)

The next step is to await an actuarial review provided by a third-party consulting firm—due by the end of 2023. That brings us up to speed.

Now, if the consulting firm finds that one or any of these programs are financially feasible, the powers that be would then need to decide on a plan and associated tax, then begin drafting the legislation in January 2024. So, we’re still a ways off from any change in actual policy.

But really, what everyone wants to know is – should I get LTCi now so I can opt out of a near-future state-run LTC program?

And our answer is: Tell your clients to plan for LTC because they need to plan for LTC, not because there is a big scary monster looming.

That, and…

About the Opt-Out

IF California legislators draft and adopt a state-run LTC program, we’re not expecting an LTC tax exemption. Here’s why.

The CA LTC Task Force saw what happened in Washington—nearly half a million earners received an exemption. They apparently only expected about 20% of those exemptions. That’s five times more people opting out than the state anticipated.

So, let’s do some math. Assuming a median income of $50,100 x the 0.58% payroll tax is a loss of $290.58 per year. Let’s bump that up to an average income of $100,000 since a good majority of those opting out were high-income earners. This brings us to a loss of $580 per year. Multiply that by the close to 490,000 who opted out, and that’s a loss of $284,200,000 per year by the CARES Act for allowing folks to opt out.

That means the Washington CARES program will probably have to consider one of the following:

  1. a reduction in the benefit (likely not since it’s already quite low)

  2. a narrowing of eligibility (they’ve proved that they expand eligibility if anything), or

  3. a tax increase (seems logical).

We can also point to similar systems like Germany’s where the LTC tax was recently increased to keep up with demand – now 4% (for childless people, 3.5% for those with kids), an increase of .35% in total.

Traveling back to California – this state needs the revenue. An exemption will result in a rush to the exit for high-income employees, whose payroll tax CA cannot afford to lose.

Single-Payer Healthcare Also on the Docket

If we’re going to get into the weeds about potential future legislation, you should probably know that just last month, the California Senate passed Senate Bill 770 which is meant to further discussion for implementing a plan for single-payer healthcare in California.

And now commences a similar saga that the California LTC Task Force is currently undergoing, but with an adjacent focus: universal healthcare. (By the way, single-payer, by definition, means no exemptions.)

If this new “task force” ends up deciding to reallocate Medicaid funding, we may be looking at a system that includes LTC benefits as well. There’s a lot at play here, and it’s great to stay on top of it. But nothing’s set in stone yet.

To Summarize

Would your client benefit from planning for care and pursuing an LTC policy? Yes! Very likely!

Could there potentially be a state LTC plan that has some form of tax exemption? Yes, it’s possible, but we’re thinking CA won’t allow any exemptions.

Should clients be planning because an “advisor” told them they need to qualify for a tax exemption? Absolutely not. That pressure is entirely manufactured by the salesperson.

It’s hard to say how to address the fear, but facts seem to be the only currency worth holding at this point, and here’s what we know:

  • There is no current legislation for a CA LTC plan.

  • There is no tax exemption for owning a private LTC plan.

  • There is no deadline for selecting an LTC plan.

  • Those are the facts. Anything else is conjecture.

We are trying to come at this as honestly and ethically as possible. Please let us know if you have any more questions or concerns.


bottom of page