Washington has changed the LTC game with the country’s first publicly funded long-term care benefits program.
We’ll break down what their program entails, and how it affects the way we need to think about long-term care going forward.
No time to read? Watch our video overview:
Washington State's Long-Term Care Act
Effective January 1, 2022, workers in Washington state will see a payroll deduction of $0.58 per $100. That money will go into the Washington State Long-Term Care Trust, created by the 2019 state law, H.B. 1087. In return, that trust will pay a benefit to qualified individuals starting on January 1, 2025 via The WA Cares Fund. That benefit is currently fixed at $100/day, up to a total of $36,500.
The program not only provides workers with basic LTC protection – it also aims to reduce the amount the state pays every year for LTC benefits issued through Medicaid.
In most cases, a rider counts as LTC coverage as long as it provides coverage for at least 12 consecutive months.
Currently, state residents can opt out from October 1, 2021 through December 31, 2022 if they can prove they have other long-term care coverage. The state has defined “long-term care coverage” to help make that distinction clearer. For example, a rider counts as coverage as long as it provides coverage for at least 12 consecutive months. There are exclusions, however – and they’re detailed here. Specifically: “However, long-term care insurance does not include life insurance policies that: (i) Accelerate the death benefit specifically for one or more of the qualifying events of terminal illness, medical conditions requiring extraordinary medical intervention, or permanent institutional confinement; (ii) provide the option of a lump sum payment for those benefits; and (iii) do not condition the benefits or the eligibility for the benefits upon the receipt of long-term care.”
Opting In or Out
Unless they opt out, Washington workers who receive a W2 from their employer will automatically be opted in. There is one catch to the opt-out system, however. Once someone opts out, they can’t opt back in.
For program participants to claim a benefit, they'll need to meet both (a) LTC impairment requirements, and (b) a certain amount of vested contributions to the plan in order to qualify. Currently, here are the requirements:
- LTC requirement: Unable to perform 3 out of 10 activities of daily living (ADLs) or have a cognitive impairment.
- Contribution requirement: The equivalent of 10 years paid into the system (with at least 5 of those consecutive) OR 3 of the last 6 years. In both instances, the employee must work at least 500 hours a year for the years that apply.
Recipients can use the money to pay for a variety of types of care: in-home healthcare, assisted living, or a nursing home. Family members can even take state training courses to qualify for reimbursements if they help with in-home healthcare.
Why You Should Care
Even if you don’t have clients in Washington, this development is important to watch.
If more states adopt similar programs, you’ll need to answer the same questions Washington advisors are being asked right now.
If more states adopt similar programs, you’ll need to answer the same questions Washington advisors are being asked right now. Watching this rollout gives you time to prepare and evaluate the options for your clients if and when a similar program comes to their state.
But will other states follow Washington’s example? It’s likely. Other states that have brought up similar ideas include California, Illinois, Michigan, and Minnesota.
Even if a system like Washington's becomes more widely adopted, there are plenty of people who aren’t going to qualify and will need your help to find a solution:
- Self-employed workers. They can opt in if they want, but if they don’t, they’re on their own for LTC.
- Freelance or gig economy workers. If you have clients who sometimes work on a 1099 basis and sometimes have a W2, their eligibility may be questionable.
- Near-retirees. Because the law includes 6- and 10-year participation benchmarks, near-retirees are going to be out of luck. If you have a client who’s retiring in two years, they’re not going to meet the minimums for benefits. That means they may want to opt out of the state-sponsored system so they’re not paying for benefits they can’t receive.
- Caregivers & stay-at-home parents. Because they don’t have a traditional employer and a W2, they won’t pay into the system or qualify for its benefits. But that doesn’t mean they don’t have the same LTC needs.
- Union members. If a worker’s union already has a collective bargaining agreement in place, they’re not going to pay into the system – at least not right away. The required payroll tax won’t be deducted until the next time that agreement comes up for negotiation.
Washington’s program isn’t intended to be a cure-all. It’s intended to help mitigate costs, not pay for all of them. That $36,500 will be indexed for inflation, but it’s currently a lifetime maximum. As you know, if a client needs LTC, it’s very likely it will cost more than $36,500.
That means they still need a plan – and they still need your help.
There are lots of questions to go over before your client decides whether to stay in the program or opt out:
- Is it likely they’ll be eligible? There are any number of reasons a client might not be eligible – if they’re set to retire within a year or two, for example.
- Is it likely they’ll still be in Washington when it’s time to make a claim? Let's say your client pays into the system for the required amount of years. But if they retire in, say, Arizona, they aren’t eligible to receive benefits after leaving the state.
- How much are they likely to pay into the system…versus how much are they likely to get out? Interestingly, there’s no cap on how much income is taxed for this program. That means high net worth clients could pay more than the amount of benefits they’d stand to receive.
- How comfortable are they with the “use it or lose it” aspect of the program? A lot of clients don’t like the idea of a stand-alone LTC policy because they might not need its benefits. This state program works the same way. What if they pay into the system for years and never need care? They might be more comfortable with an annuity or life insurance rider that allows them to pay for care if they need it, but they aren’t losing any benefits if they don’t.
Some clients might be more comfortable with an annuity or life insurance rider that allows them to pay for care if they need it, but if they don't, they aren’t missing out on benefits they paid for.
The Washington plan has turned LTC into a hot topic (well, as much of a hot topic as long-term care can be). You can use that to start conversations with your clients and prospects via email and on social media. For example, if you have a 30-year old client who plans to retire at age 65, that means they'd pay into the system for 35 years. Multiply 0.58% of their income by those 35 years - and then compare that to the $36,500 lifetime max they'll get from the new program. If your client makes about $200,000 per year, the amount they contribute will roughly equal the cash value of a life insurance policy held over the same period. At that point, your client would have hundreds of thousands of life insurance protection essentially for free plus the same amount of LTC coverage, instead of that lifetime maximum of $36,500. Ask them: which of these options makes the most sense?
LTC discussion points – alternatives to emerging state-provided options:
- Stand-alone LTC policy
- Life insurance with an LTC rider
- Annuity with an LTC rider
- Single-premium options for all of the above
Lifestyle discussion points:
- Is there a need for life insurance as well as LTC benefits? If so, is the client insurable? If not, an annuity with LTC rider might be the best way to provide LTC benefits without underwriting.
- Are they planning to retire outside their current home state? If so, a state-run program might not work for them in the long run.
- Have they considered changing their target retirement date? For Washington employees in particular, this is now a valid question. For example, if they need two more years to vest in the state plan, is it worth working longer? How would that change their current retirement plan?
These are all questions you can help clients think about no matter which state they live in. Washington just gave everyone a great reason to reach out to clients and start asking these questions so they understand the big picture when it comes to long-term care.
That's our look at Washington state's long-term care act!
Have you had clients ask you about Washington's new policy? Would you support your state creating a similar program? Sound off in the comments!
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