Overview
Long-term care (LTC) insurance is designed to cover expenses related to assistance with daily living activities for individuals who suffer from chronic illness, disability, or cognitive impairment. State-mandated LTC insurance aims to provide a safety net for citizens while reducing the financial burden on Medicaid.
State-mandated long-term care insurance requires residents to purchase a minimum level of LTC coverage or participate in a state-run program. The purpose of such mandates is to ensure that individuals have access to necessary long-term care services while reducing the reliance on Medicaid. By encouraging people to plan for their long-term care needs, states can potentially save resources and provide better support to their aging populations.
At present, several states are actively exploring legislative measures to tackle the steep costs of long-term care, potentially by implementing a state payroll tax for long-term care. We will discuss the progress made by each state with pending legislation and determine if exemptions to any payroll tax will apply to residents who possess qualified long-term care insurance, as well as the types of products available in each state.
Washington
In 2019, Washington State passed the Long-Term Services and Supports Trust Act, establishing the nation's first state-run long-term care insurance program. W-2 workers are expected to begin contributing to the fund in July 2023, with the first benefits available in July 2026.
Key features:
- Contributions: All workers in Washington contribute to the program through a payroll tax of 0.58% of their wages. Self-employed individuals can opt into the program if they choose.
- Lifetime Maximum Benefit: The program provides a lifetime maximum benefit of $36,500 per individual, adjusted annually for inflation.
- Vesting and Eligibility: To be eligible for benefits, participants must have contributed to the program for a minimum of either (a) three years within the last six years, or (b) ten years with at least five of those years being consecutive.
- Covered Services: Benefits can be used to pay for a wide range of long-term care services, including in-home care, adult family home care, assisted living, nursing home care, and support services such as home modifications or transportation.
Opt-out option:
Washington residents had a one-time opportunity to opt out of the Washington Cares Fund, the state-mandated long-term care insurance program. The opt-out period was from October 1, 2021, to December 31, 2022. To be eligible for the opt-out, individuals needed to have an existing private long-term care (LTC) insurance policy in place by November 1, 2021.
Those who opted out with an approved exemption were not required to pay the mandatory payroll tax of 0.58% of their wages. However, it is important to note that opting out of the Washington Cares Fund is a permanent decision, and individuals who chose to opt out will not be able to access the program's benefits, even if they later discontinue their private LTC insurance coverage.
The opt-out option was mainly designed for people who already had private long-term care insurance, preferred a private insurance policy over the state program, or believed that their private policy provided more comprehensive coverage than the Washington Cares Fund.
What we learned from Washington:
Out of the 3,800,000 employees, roughly 480,000 (13%) opted out of the Washington Cares Fund by purchasing group or individual LTC insurance or life insurance with LTC riders. This occurred even though many carriers experienced a surge in demand over a brief period, causing them to temporarily exit the market.
Although the coverage was only available for purchase for a limited time and solely in Washington, the state's sales contributed to a nationwide increase of at least 200% in the LTC insurance market. Premiums saw a more modest increase, given the lower average premium per policy.
The state is contemplating a recertification process for those who opted out by purchasing long-term care insurance. Also, benefit portability, which refers to qualifying for the benefit if an employee relocates out of state, remains an unresolved issue.
California:
While California does not currently have a state mandated LTC insurance program, lawmakers have been considering implementing one.
In 2021, California established a 15-member Long-term Care Insurance Task Force (“Task Force”) to assess the feasibility of implementing a statewide LTC insurance program. In December 2022, the California Task Force recommended five program design options to the Insurance Commissioner, Governor, and Legislature, ranging from $36,000 in supportive LTC benefits to $144,000 in comprehensive long-term services and supports benefits. The five program design options will undergo financial analysis in 2023 to determine cost and viability of each design.
California is also moving toward a payroll tax model like Washington's to fund a minimum long-term care benefit. As observed in Washington, carrier capacity might be limited, so it is advisable to enroll early rather than waiting if you plan to purchase LTC, regardless of whether the payroll tax is implemented.
Preliminary indications suggest that the proposed tax would apply to earned income for W-2 employees. It is yet to be determined how an exemption would function if someone possesses a qualifying long-term care insurance policy.
What we learned so far:
- The payroll tax cost might be shared between employers and employees.
- An opt-out provision might be allowed if the employee has a private LTC insurance policy.
- There are no concrete details about the California payroll tax exemption, but five scenarios are under consideration.
- IMPORTANT: The state may evaluate the financial impact of changing the deadline for purchasing opt-out eligible private insurance policies from the Program effective date to the beginning of the year preceding the Program effective date
California has approximately 16,500,000 employees, over four times the number in Washington state. It is crucial for employees to secure meaningful LTC insurance coverage and initiate the process before any final state announcements. This strategy will help prevent the last-minute scramble for long-term care insurance coverage experienced in Washington.
There are fewer group and individual products and carriers in California than in Washington, primarily due to lengthier state approval processes. Carriers may expedite new solutions to the market depending on the feasibility report's outcomes.
It's essential for California residents to initiate the process of securing comprehensive long-term care insurance coverage now. This is due to the potential consequences of a state implementing a payroll tax, as witnessed in Washington. When this occurred, there was a surge in LTC insurance applications, overwhelming insurance providers. Consequently, numerous companies withdrew from the state, resulting in a temporary scarcity of available options.
Another compelling reason to pursue coverage early is the possibility of obtaining the most cost-effective solution. Initiating the process at a younger age, assuming good health, generally leads to a better overall value. Postponing this decision may lead to increased premium costs or, in the case of a health event, even render you being ineligible for insurance.
View California Final Draft Feasibility Report:https://www.insurance.ca.gov/0500-about-us/03-appointments/upload/AB567OliverWymanFeasibilityReport2022.pdf
New York:
In New York, a preliminary Senate plan resembling Washington's is currently under consideration. This plan involves taxing earned income to provide taxpayers with $36,500 for care expenses, accessible five years after the law's enactment.
However, the legislation's final form and impact remain uncertain until it is officially approved and implemented. The draft plan includes a proposed exemption for employees who have long-term care insurance before January 1st of the year the law comes into effect.
The link to New York state draft legislation: https://www.nysenate.gov/legislation/bills/2021/S9082
What we learned so far:
- New York has approximately 8.7 million employees, which is more than double the number in Washington state.
- The availability of group and individual products and carriers in New York is considerably lower than in Washington.
- IMPORTANT: The draft plan includes a proposed exemption for employees who have long-term care insurance before January 1st of the year the law comes into effect.
Pennsylvania:
Pennsylvania's House Bill 2779, proposed on August 22, 2022, bears similarities to the WA Cares Act.
The link to Pennsylvania's House Bill 2779: https://www.legis.state.pa.us//cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20210&cosponId=33573
Key features:
- Optional participation for the self-employed
- Funded via a 0.58% payroll tax.
- Provides a $100/day benefit up to a $36,500 maximum lifetime limit.
- Eligibility requires being at least 18 years old and having worked a minimum of 500 hours per year within the state, regardless of the state of residence.
- Residency is necessary to receive benefits, akin to Washington's requirement
- Benefit distribution could start on January 1, 2026
- Qualifying for claims is based on three activities of daily living (ADLs)
- There might be an exemption from the state payroll tax for private long-term care, but details are limited.
Minnesota:
A draft bill resembling the Washington State legislation was introduced in 2021, with no known updates since then.
The link to Minnesota’s draft bill: https://www.revisor.mn.gov/bills/text.php?number=HF1664&version=0&session=ls92&session_year=2021&session_number=0
As it stands, the bill proposes 365 Benefit Units worth $100 each for eligible beneficiaries, payable to qualified providers. The benefit is financed through a long-term care state payroll tax, and no exemption has been identified. Recently, there has been progress on legislation permitting certain hybrid plans that combine term life insurance with long-term care insurance, suggesting that multiple options are still under consideration.
Update:
- Approximately 2.7 million employees reside in Minnesota.
- Minnesota has a similar product availability to Washington, leading us to expect comparable capacity for individual products in the state.
Conclusion
State-mandated long-term care insurance is a growing topic of interest as states face the challenge of providing adequate care for their aging populations. Washington's groundbreaking state-run program, California's exploratory task force, and New York's partnership program demonstrate different approaches to addressing this issue. As the long-term care landscape evolves, residents of these states and others should stay informed about changes that could impact their future care and financial planning.
If you wish to learn more about long term care insurance, please schedule a meeting with us: https://go.oncehub.com/Taurus-Financial