Washington has adopted the nation’s first state-run long-term care (LTC) insurance program for Washington residents, to be paid through a payroll tax by Washington employees. What may appear as a thoughtful benefit may actually be an expensive tax for many Washington employees, and a boon for the LTC insurance industry.
1. How much is the new Long-Term Care tax and who pays for it?
Known as the “WA Cares Fund,” Senate Bill 1323 amended RCW 50B.04 to provide that beginning January 1, 2022, Washington employers must withhold a new 0.58 percent payroll tax from all employee compensation, including wages, bonuses, paid time off, and stock options. Think of the tax as $58 for every $10,000 earned. There is NO CAP on the tax, which means every dollar earned over a lifetime is subject to the same tax. High earners and those who are young may end up paying more into the program than they will ever get out of it.
2. What will the money be used for?
State and federal sponsored programs for Medicaid are expensive, and the more people have available for care, the less the government is required to pay. The WA Cares Fund will alleviate some of these long-term care costs. The money will also fund a LTC insurance program for those who have paid into the program. However, the LTC insurance program will not be available for individual use until January 1, 2025 – three years from the start of collecting the tax.
3. Who qualifies for the LTC program?
To be eligible, an individual must have paid into the LTC insurance program either
(a) for three (3) years within the past six (6) years from the date the benefits application is made; or
(b) for a total of 10 years, with at least five of those years paid without interruption
the individual worked at least 500 hours during each of the years in the applicable three- or ten-year timeframe.
Self-employed individuals are exempt from the tax, but may choose to opt in. Under the program, self-employed individuals must elect coverage by January 1, 2025, or within three years of becoming self-employed for the first time.
You are self-employed if you are:
- A Sole Proprietor
- A Joint Venturer or a member of a partnership
- A member of a limited liability company (LLC) that has not elected S-Corp status
- An independent contractor (as described in RCW 50A.05.010 (7)(b))
- Otherwise in business for yourself
You are NOT self-employed if you are an employee of a company you own, including being paid by the corporation. If this is your situation, you are required to withhold premiums and report yourself with all of your other employees.
For persons planning to retire in the next three years, the LTC insurance program will not be available, since they will not have not met the payment requirement.
4. Are there any restrictions?
Yes. The program is Washington based, with the intent of rewarding those who need the care while living in Washington.
For retirees who otherwise would qualify but move out of state at any point (e.g., to move in with a relative or live in a warmer climate or less-expensive state), the LTC insurance program will no longer be available because it is only available to residents.
5. Does my spouse qualify if I pay into the program?
The benefit only covers the tax-contributing employee’s long-term care, not long-term care for a spouse or dependents.
6. Many LTC insurance policies require that your are not able to perform certain Activities of Daily Living (ADLs) to receive benefits, so how does that apply to Washington’s LTC plan?
ADLs are how care experts evaluate whether a person is able to take care of him or herself. The six traditional ADLs are:
- Ambulating: The extent of an individual’s ability to move from one position to another and walk independently.
- Feeding: The ability of a person to feed oneself.
- Dressing: The ability to select appropriate clothes and to put the clothes on.
- Personal hygiene: The ability to bathe and groom oneself and to maintaining dental hygiene, nail and hair care.
- Continence: The ability to control bladder and bowel function.
- Toileting: The ability to get to and from the toilet, using it appropriately, and cleaning oneself.
Many LTC insurance policies require that the person is unable to perform 2 of these 6 functions, through a medical determination. The person then becomes eligible for the benefit from the policy, subject to a waiting period (think of this as a deductible, before the benefit begins).
The Washington LTC eligibility is more restrictive, requiring the inability to perform 3 of the 6 ADLs, through the filing and approval of an application with the Department of Social and Health Services.
7. What is the benefit and is there maximum I can receive?
Individuals can receive up to $100 per day to cover long-term care costs, with a maximum lifetime benefit of just $36,500, which is for one year’s worth of care.
Benefits are only available for approved long-term care needs. Here, the list is rather broad and includes nursing facilities, assisted living facilities, adult family care homes, home healthcare, medical supports (e.g., wheelchairs, ramps), transportation, caregiver support, and memory care.
8. How does that benefit compare to the costs of care?
Genworth Financial sponsors an annual Cost of Care Survey, conducted by the CareScout research team, to determine the cost of nursing homes, assisted living, and related care costs throughout the U.S. For 2020, in Washington, the annual costs are:
- Home Health Aide $72,369
- Assisted Living $69,000
- Nursing Home, Semi-Private $114,975
- Nursing Home, Private Room $131,400
These costs are only projected to increase each year. You should never think of LTC insurance as a replacement, but instead as a supplement to offset some of the costs of care. Still, the Washington plan can only go so far, and should be considered as part of an overall “aging strategy.”
9. Is there a way to opt-out of the tax?
Since the plan is set up to self-fund, the opt-out options are limited.
- An employee who attests they have LTC insurance purchased prior to November 1st, 2021 has the option to apply for an exemption from the premium tax.
- Once the employee is determined to be exempt, they may NOT later opt in.
- The Employment Security Department (ESD) will accept applications for the exemption only from October 1st, 2021 through December 31st, 2022.
- ESD is drafting rules for the administration of this program, including what LTC insurance would be sufficient to support an exemption. The current proposed rules would permit LTC insurance as defined in RCW 48.83.020 to qualify for an exemption.
10. Do you think I need to rush out to get a LTC policy before the November 1st deadline?
The decision on LTC insurance is part of an overall evaluation of multiple factors, including assessing the need, evaluating the costs and policy options, reviewing aging-in-place readiness, and more. If you are considering opting out, please contact Pacific Asset Management so we can assist in evaluating your individual situation and options available.
Disclosure: This material is presented solely for information purposes and has been gathered from sources believed to be reliable, however, Pacific Asset Management cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. The preceding information is not intended to be tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Nothing in this presentation in intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Advisory services are only offered to clients or prospective clients where Pacific Asset Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Pacific Asset Management unless a client service agreement is in place.