On September 9, 2021 the Association of Washington Business sent to Governor Inslee a letter strongly suggesting the governor should pause the implementation of the Long-Term Care Act until some significant questions can be answered and some much-needed changes be made. The letter was signed by more than 150 Washington businesses, ranging from major corporations and chambers of commerce to mom-and-pop pizza parlors.
PUBLIC LONG-TERM CARE INSURANCE IS A GOOD IDEA, RIGHT? SO WHAT’S THE PROBLEM?
The main issues highlighted in the AWB letter are that:
- There is no clear definition of which long-term care products qualify for the opt-out.
- Near-term retirees and Washington state workers who live in border states will be required to pay into the program without ever realizing a benefit.
- The opt-out process will not be operational in time for Washington residents who have long-term care coverage to avoid paying the payroll tax beginning Jan. 1, 2022.
- Securing long-term care coverage has been extremely difficult for Washington state residents because the purchase by date for long-term care coverage (11/01/21) did not provide enough time for people to secure coverage, and that, in turn caused a collapse in the long-term care market which has forced carriers to suspend sales due to the high volume of requests.
- There is simply no recertification process included in the opt-out provision allowing people to secure their own long-term care coverage for opt-out purposes and then cancel coverage once the lifetime opt-out authorization has been received.
HOW DID WE GET HERE?
Back in 2019, Washington was the first state in the nation to pass legislation creating a public fund to provide payment assistance for long-term care for working residents. At this time, employers are not required to contribute – but they are required to collect the new contributions taken from all employee’s paychecks.
The Long-Term Care Act (also called the “WA Cares Fund”) imposes that mandatory payroll tax without a cap on all compensation for all employees at a rate of .0058 (58 cents per 100 dollars). The maximum benefits payable back to the employee are set at a rate of $100 per day, with a lifetime maximum of $36,500. Employees must be vested with employment for ten years in Washington after 2019 before they can access the fund. Moving to another state ends all payments and benefits, regardless of amounts paid in or benefits paid out.
Originally, the only employees eligible to opt out of the plan were those who had a private plan prior to the enactment of the 2019 legislation. And if anyone elected to opt out, once a person opts out, they can never get back in.
THE COVID COMPLICATION
The arrival of COVID pushed the implementation of the program back to January 1, 2022.
In the meantime, concerns were raised about the program being mandatory for all workers over the age of 18, including anyone who might want to have their own private insurance. So in April 2021 state Senator Ron Muzzall (R) of Whidbey Island added a work-around amendment which gave Washington employees the right to opt out of the program if they could prove that they are privately insured by November 1, 2021.
But this tax change didn’t really hit the news until this summer, when people realized that the window was closing soon, and suddenly started an avalanche of applications for private long-term insurance plans.
Normally this kind of insurance is not in high demand (largely because of its cost), so the sudden, massive new demand for it from those wishing to avoid the new payroll deduction overwhelmed the insurance companies, leading to most of them stopping offering any plans at all in Washington by the end of August 2021.
The main reason why was that it takes at least 60 to 90 days to process an application, and so, by that point the deadline could not be met. Other voices in the insurance industry complained that the public LTC benefits program was unfair competition for private insurers, especially since many employees were purchasing low amounts of coverage or intended to drop the coverage right after the deadline.
Oh, and if you do manage to opt out because you are one of the lucky few who already have long-term care through your employer, the way the act is written will the cause problems for your employers as their plans will now possible conflict the existing federal Employee Retirement Income Security Act (ERISA) regulations.
In Summary, Stephen Moses, president of the Center for Long-Term Reform in Seattle, as quoted by ThinkAdvisor noted, “The drafters of the WA Cares Fund should go back to the drawing board before they ruin the LTC insurance market in Washington state entirely.”
THE BIG PICTURE: DOES THE MATH WORK OUT?
Many states across the nation, as well as the Federal government, are watching this drama unfold here in Washington State as they consider such programs in their own jurisdictions. Provided he survives this week’s recall election, California governor Gavin Newsom is already on record as wanting to do something similar. As the U.S. population continues to both increase and live longer, the question of who will foot the bill for long-term care is very real.
So, just how far will that $36,500 get you?
According to Genworth, a national company with 145 years of retirement planning experience, these are the current average MONTHLY costs for long-term care in Washington State (which run about 20% above the national average):
- In-home care $6,000
- Assisted living $5,750
- Nursing home, semi-private room $9,580
- Nursing home, private room $10,950
So, for an average Washingtonian worker, with a maximum individual benefit of $36,500, after years of paying in to the system, you can expect six or seven months of basic care covered by the program. Not all at once though, because the $100/day maximum will actually prevent you from getting more than $3100 a month anyway.
PROS AND CONS OF THE CURRENT LONG-TERM CARE ACT:
- It’s universal, a start and better than nothing.
- It creates a basic safety net for people who can’t otherwise afford their own policies
- Employers don’t have to contribute – at least so far.
- The funds are protected from being redeployed for any other state programs.
- For an income of $50,000, it only amounts to about $300 per year.
- Many people who are almost retired will never be invested long enough to able to receive any benefits.
- Anyone who work in Washington but live in border states will have to pay in but receive no benefit
- No one knows if the fund can remain solvent over enough time to provide benefits without significant modifications to the program – such as employer contributions?
- For companies that have their own retirement plans, this version of the LTC Act creates compliance conflicts with ERISA requirements.
- $36,500 at $100 per day will only cover half of the current cost of in-home care, and less than a third of a nursing home. And only for 1 year.
- If you move out of state, the benefits stop. Although if other states eventually have similar programs, the hope is that there might be reciprocal agreements.
- The current opt-out option deadline does not provide a long enough time frame for employees to purchase their own insurance.
- Apparently the purchase of an equally insufficient or worse private policy will qualify an employee for the exemption, and there is no stipulation that the employee needs to keep the policy in place after November 1.
- If an employee opts out now, but it turns out they do need the fund later – say, twenty years from now — they can never get back in.
Given that this is an attempt by Washington State to lead with a brand new kind of program, one never before attempted in the United States, it isn’t surprising that there are some kinks to work out. But in this case it seems the cure may well be worse than the disease.
Share your thoughts, your story and/or your suggestions with our governor, state senator and representatives on how they might best move forward towards a better version of what started as a good idea.
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