Companies in Washington are warning their employees about a new state tax that will be taken from their paychecks beginning the first of next year. That tax will raise money for a new government long-term care plan called WA Cares.
Beginning in 2025, the plan will pay benefits to enrollees who need help with non-hospital-based health care expenses.There is little to no debate among Washington legislators that there is a need for better, more affordable long-term care insurance. Even WA Cares opponents, such as former Sen. Maureen Walsh [R-Walla Walla], admit that.
“I, for one, am going through this issue with my family right now. My folks have just gone into assisted living, never dreaming that they’d live to be 86 and 87 years old," she said during a Senate floor debate in 2019. "Thank God they’ve got some resources to help and I get it. I do believe people need long-term care insurance.”
Long-term care insurance is one of those things people feel they’ll never need. But AARP says 70% of people 65 and older require financial help to live on their own.
That help has not been easy to find during the last four decades. Insurance Commissioner Mike Kreidler says companies’ early forays with long-term plans were limited and expensive and didn’t catch on with the public. He says most firms stopped offering coverage.
“There were something like 150 companies that were marketing long-term care products going back to the late ‘80s and early ‘90s and today you’re down to something like a dozen companies that are actively marketing," he said.
Even those policies are too expensive for most families. With no one to share the cost of caring for parents and grandparents, families have foot the full bill themselves for items such as assisted living and home-based care. Many spent down their assets and then applied for Medicaid, the joint state-federal program for people with few means.
Washington legislators were troubled by the trend. As more families applied for Medicaid, they saw a greater share of the state’s future budgets going to health care expenses. So, in 2019, the legislature, including Sen. Annette Cleveland [D-Vancouver], opted to put the state in the long-term care business.
“This bill helps middle-class families have the peace of mind that they will have a long-term care benefit if and when they are in the position to need long-term care," she said.
The WA Cares program is administered by Ben Veghte.
“The way this program is designed is that it’s a universal program like Medicare," he said.
It’s funded by a payroll tax that employees will begin paying at the start of 2022. Your employer will take out 58 cents for every $100 you make. That’s $290 a year if you make $50,000.
“You pay a premium every year till you retire. So let’s say you’re 40 years old today, you’d pay for maybe 25 years," Veghte said.
After you’ve paid into the fund for several years, you can start drawing out money, with a lifetime maximum benefit of $36,500. That would only buy you a few months in a long-term care facility.
Veghte says most people in the program will never need that level of care and the state benefit would cover all of their needs.
If you’d prefer to buy your own private plan, WA Cares has a mechanism by which you can opt out.
“You can apply for an exemption with the Employment Security Department. You can do that through our website at WACaresFund.gov. But then you’re permanently exempted from the benefit. It means you’ll never have access to the benefit. You can never get back in," he said.
In order to get an exemption and avoid the payroll deduction, though, you must act quickly. You’ll have to prove to the state by November 1 that you have a private long-term care plan. That gives you barely any time to opt out, says Elizabeth Hovde, who writes about this for the right-leaning Washington Policy Center’s blog.
“Even if you find a plan that works better for you, sold in the private market, you are hitting the deadline pretty much right now. Underwriting takes time," she said.
She says people in the insurance industry tell her that companies are limiting their policies because they’re worried that people will buy plans and then drop them immediately after getting the state exemptions.
Stay in or opt out?
Here are some of the factors to consider when thinking about whether to stay in WA Cares or choose private insurance [or both].
WA Cares is an opt-out program, which means you’re included unless you provide the state proof that you already have your own plan.
“If you had coverage prior to the enactment of this law or if you were to purchase coverage before November 1, then you’d be grandfathered in," Veghte said.
To apply for an exemption, you must show you have private long-term care insurance. If the state grants your waiver, your employer will stop withholding the tax, but that would make you permanently ineligible for the state program.
So, should you stay in WA Cares or should you buy private coverage?
“I think it is a great proposal for the bottom 50% for the economic demographic in our state," said Scott Olson, a long-term care insurance agent in Camano Island, Washington.
But he says it doesn’t make sense for everyone.
“Somebody who’s making $1 million a year, just as an example, they pay $5,800 a year for the program. That’s a whole lot of money to be paying for a very small amount of benefit. Somebody making $15 an hour is going to pay very little in the payroll tax but still get the same benefits as somebody who’s making hundreds of thousands of dollars a year," he said.
Olson suggests other factors to consider. He says, if you’re near retirement, you might consider opting out since the state requires you to contribute for 10 years before you can draw benefits and you stop contributing when you retire.
“Also, anyone who’s planning on retiring out of the state of Washington or planning on moving out of Washington should probably opt out of the program because the benefits are only payable here in Washington," he said.
While Olson supports WA Cares for some, Elizabeth Hovde from the Washington Policy Center says the lifetime benefit, $36,500, will be totally inadequate for many people.
“You know, low income workers don’t even win in this scenario. They are people who, sometimes, would be on Medicaid eventually, anyway, and right now they’re having money taken out of their paychecks for a benefit that won’t last them very long and put them right back on Medicaid," she said.
Hovde believes WA Cares will be difficult for the state to administer and could even become insolvent in the future. She says, instead, the legislature should provide incentives for insurance companies to offer more, less expensive policies that offer better benefits.
Veghte, the administrator of WA Cares, says the state is doing that, working with companies to create policies for people who want to buy both public and private coverage.
But time is of the essence. With the November 1 deadline drawing near, Insurance Commissioner Mike Kreidler says consumers looking to buy private insurance don’t have much time to get through the underwriting process.
“It’s one where the companies are nervous, but there are some companies out there. Do your homework. Call the companies. Talk to your broker. Talk to your financial advisor and find out if it’s possible to have a substitute that you might sign up for that would relieve you of your responsibilities for the Washington Cares program," he said.
The state will begin accepting WA Cares exemption applications on October 1. It will stop accepting applications at the end of 2022.
Kreidler’s agency has a list of companies that sell long-term care insurance on its website. Meanwhile, you can also read more at the WA Cares website.