Making the decision on private vs public long-term care insurance.

Washington State recently passed a new law which mandates public Long-Term Care benefits for WA residents. This was created to reduce pressure on the Medicaid system. It will be paid for by a 0.58% tax on employee wages. While the program may help many Washington state residents, whether this is advantageous for you may depend on your individual situation.

What is this tax?

Residents will be taxed starting 1/1/22. The tax will be taken via a payroll tax. The tax is permanent and applies to all residents, even if your employer is out of state.

The tax is currently set at $0.58 per $100 of payroll. So, for every $1,000 you make you will have $5.80 deducted for this benefit going forward.

There is no cap on wages being taxed. All wages and remuneration, including stock-based compensation, bonuses, paid time off, and severance pay, are all subject to the tax.

What do I get from this tax?

Once vested, you will be eligible to access $100 a day, up to a maximum lifetime benefit of $36,500 (adjusted for inflation) to pay for expenses associated with needing assistance with activities of daily living (ADLs). Unlike private insurance that only requires you to be unable to do 2 ADLs, the State Plan requires that individuals need assistance with 3 ADLs. Examples of ADLs are dressing, bathing, cognitive impairment, and other basic functions of your daily routine.

Who is eligible for the tax?

Only Washington residents age 18 or older who have paid the payroll tax for either 10 years without interruption of five consecutive years, or three of the last six years, and who work at least 500 hours a year, are eligible. Self-employed people may choose to participate but do not have to. The work requirement effectively exempts from the program current retirees, children with disabilities, and adults with disabilities who work less than about 10 hours a week. However, it calls for a study of whether to include those who become disabled before they are 18.

Should I get my own LTC Policy?

It is important to remember that the new payroll tax is only paid while you are working. Traditional LTCi policy premiums are typically paid throughout your lifetime, although there are other options available where you could pay over shorter periods of time or in a lump sum amount. LTCi policies offer more comprehensive coverage than the state-run program, and are portable to whatever state you reside in.

It is critical to note that while the payroll tax is currently set at 0.58%, there is no guarantee that the state will not raise this rate in the future. Purchasing a long-term care policy can protect you from potential future state tax rate increases, as well as protects future wage growth from the long-term care payroll tax.

If you’d like to review your current situation, we can help you with what your options are for private LTC insurance, so you can make an informed decision on which direction you’d like to go.

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As an independent agency, we are here to help you learn more about the WA State Long Term Care Act and what this means for your family.