A recent groundbreaking legislation passed in Washington state has far-reaching implications for the long-term care insurance landscape. Although you may conduct your business elsewhere, there are undercurrents across the country from the passage of this legislation that will likely impact your business in the near future. Understanding the pros, cons, and pitfalls of these legislative changes is vital for you and your clients. Here’s why it matters:
Overview of Washington State Cares Fund
In essence, Washington state introduced and approved a 0.58% payroll deduction to establish a public insurance program called WA Cares. This initiative aims to address the escalating costs of long-term care associated with debilitating illnesses that require extended care at home or in a facility.
Key features of the fund include:
- A 0.58% payroll tax imposed on all Washington state workers
- Maximum lifetime Long Term Care benefit of $36,000
- Non-refundable benefits, meaning it follows a “use it or lose it” approach
- A requirement for workers to contribute to the fund for 10 years to be fully vested and receive the maximum benefit amount
- Stricter eligibility criteria compared to traditional LTC policies
- Exclusion of non-working spouses, out-of-state residents, and non-vested individuals
Only workers contributing to the fund can access the benefits. WA Cares is designed specifically for workers, with the tax deducted from their paychecks. Once they fulfill the contribution requirements, they become eligible for benefits should the need for long-term care arise.
Impact on Your Clients
Let’s consider the scenario where the WA Cares concept gains momentum nationwide, as several states are currently contemplating such measures. The most apparent impact of this legislation is the reduction in your client’s paycheck. Highly compensated earners will be obliged to contribute to this program regardless of their preference. At 0.58%, the contribution can be significant. It is important to note that the tax may increase over time, with no safeguards preventing such an increase.
For younger high-earning workers, they may end up contributing more to the program than the maximum benefit payout they would receive if needed in the future. On the other hand, individuals nearing retirement may contribute to a program they will ultimately not be eligible for.
It is crucial to recognize that many individuals will be excluded from this program. Benefits are not portable to other states, meaning those who leave Washington after contributing for many years will not take their contributions with them. Non-working spouses and family members are also not covered. In the case of WA Cares, there was a short opt-out window, requiring workers who wished to avoid the tax to purchase an LTC policy before the deadline. This led to a rush of policy purchases and caused insurers to temporarily halt the sale of LTC policies in the state due to government ambiguity.
Will these Policies Spread Across the Country?
Numerous states currently have proposals or are drafting legislation similar to what Washington has implemented. States considering such programs include California, Oregon, Hawaii, Michigan, Alaska, Illinois, Minnesota, Missouri, Colorado, New York, North Carolina, and Utah. As you can see, the concept is spreading from west to east. Unless the WA Cares Fund fails significantly, it is a matter of “when” rather than “if” such a program will emerge in your state. So, what can we learn from Washington’s implementation?
Engage in Client Discussions
Take the time to discuss long-term care needs with your clients. It is better to have a policy in place before these programs become mandatory. The price and availability of policies in Washington were dramatically impacted in the months leading up to the opt-out deadline. Having witnessed this process, it is important to prepare clients in advance to avoid the challenges experienced by many individuals in Washington.
Analyze the Financial Implications
Understand the tax consequences for your clients
Depending on their age and salary, there may be valid reasons to opt out and explore alternative approaches to address their long-term care needs. Programs like WA Cares rely on the contributions of many workers. Assuming future legislation will provide opt-out options, familiarizing yourself with the financial implications beforehand will help clients make informed decisions regarding their care and finances.
Let AFG know how we can best help you
We are committed to helping our agents and advisors find the best Long Term Care options for their clients. So far, state addressed LTC policies are not enough to truly cover the costs of care. Let us know how we can help you address your clients’ LTC needs.