In spring of 2021, Washington became the first state in the country to implement a mandatory long-term care insurance program. Here are some key points to know about this payroll tax-funded benefit:
A 0.58% payroll tax begins 1/1/22 for all Washington state W2 employees 18+ (there is no cap to this tax),
Self-employed workers are NOT included,
The Washington Cares Act can ultimately pay up to a $36,500 lifetime total for long-term care services and support,
Benefits are only paid out to Washington residents and they begin January of 2025, and
Those with qualifying private long-term care insurance policies can opt out starting 10/1/21.
Once State Governor Jay Inslee signed the LTSS Trust Act into law, a scramble to get private long-term care insurance coverage began for W2 employees in Washington. As an independent brokerage that specializes in long-term care insurance, we became swamped with quote requests for the minimum amount of coverage that would qualify for the opt-out.
Of course, long-term care insurance isn’t a tool for tax evasion. Any advisor that works with us knows we will take every opportunity to inform them of the importance of long-term care planning—not just getting the smallest (or biggest) policy someone can afford.
LTC carriers caught on quickly and announced restriction after restriction: benefit minimums, age minimums, underwriting restrictions, payment mode restrictions, and deadlines that kept creeping closer than what was originally stated. They tried to keep a lid on the mad rush and eventually, many of them had to restrict LTC sales in Washington altogether. One by one, the emails went out: “We have decided to restrict all Washington state long-term care sales until November 1, 2021.”
It became nearly impossible to obtain adequate long-term care insurance coverage by the November 1, 2021 deadline to opt out of the state fund. However, once the restrictions that most carriers have implemented are lifted, prospects can still apply for a private LTCi policy in Washington to supplement the modest $36,500 total lifetime benefit that the state-mandated program offers (There will be temporary premium minimums).
Now, California has entered the room. The Department of Insurance has assembled a Task Force to develop what California’s state-run long-term care services and support fund will look like. The Task Force has been determining program structure and coverage style as well as how it will coordinate and interact with other long-term care programs.
Here are some key takeaways of the Task Force’s preliminary questionnaire results, completed by Task Force Members:
The program needs to be flexible, affordable, and accessible to all.
The government should foot at least 50% of the bill, but benefits should generally be means-tested.
Employment/employee vesting shouldn’t be part of the criteria for eligibility; existing elderly should be eligible.
There should be no asset spend-down requirement, yet there should be a waiting period.
Private insurance is believed to be unaffordable/inaccessible to all, and so it should be complimentary to public programs.
The public needs more education on the coverage and general cost of care for LTSS.
Financing will be largest hurdle for a successful California LTSS insurance program, which can be mitigated by mandatory enrollment, affordable payroll taxes, and varying levels of coverage.
Education, transparency, and meaningful public engagement are all necessary for successful program development and rollout.
Whatever California’s future state-mandated LTC program ends up looking like, it’s likely going to happen within the next few years. And judging by what we witnessed with Washington, the time to get ready for the effects of such a program launch is now.
Professionals nearing retirement in California should look into purchasing adequate long-term care insurance policies as soon as possible to avoid the frenzy when the state fund is publicly announced. The Golden State will likely have a tighter hold on opt-outs from the fund compared to Washington, and that’s if it doesn’t do away with opting out entirely.
Either way, a state-funded program would typically only provide a baseline amount of coverage, and this presents opportunities for advisors to help those who need more coverage to obtain supplemental private policies. The more education and public engagement concerning the importance of access to long-term care, the more people will be interested in planning for an LTC event.
Stay tuned for our next update of the California Task Force meetings.