The state of Washington passed a dramatic piece of legislation that impacts the long-term care insurance landscape of the state in a number of ways. While you may not have clients in Washington state, the potential domino effect of this legislation may end up on your doorstep.. So what are the pros, cons, and pitfalls of these legislative changes and why should it matter to you and your client?
Washington State Cares Fund in a nutshell
The basic concept here is that the state of Washington created and passed (without voter approval) a 0.58% payroll tax that will fund a public insurance program named WA Cares. Its aim was to tackle the problem of rising care costs associated with debilitating illnesses that require long-term care at home or a facility.
- Assesses a 0.58% payroll tax on all WA state workers
- Provides a maximum lifetime Long Term Care benefit of $36,000 dollars
- Provides a “use it or lose it” benefit.
- Requires workers to pay into the fund for 10 years before they are ‘fully vested’ to receive the maximum benefit amount
- Has stricter requirements for determining who is eligible to receive benefits. WA state has a 3ADL requirement compared to 2ADLs with most private LTC policies
- Does not cover non-working spouses, people who live out-of-state, or those who are not ‘vested’
Only workers who are paying into the fund are able to access the benefits. WA Cares is a worker’s program. State workers will be assessed the tax on their paycheck. Once they meet the contribution requirements, they will be eligible for benefits should the need for long-term care arise.
How would a program like WA Cares affect my client?
Let’s assume for a moment that the WA Cares concept takes off throughout the nation. Indeed, there are several states considering such a move as of the writing of this blog article. The most obvious impact of this legislation is the hit to your client’s paycheck. A highly-compensated earner will be paying into this program whether they want to or not. At 0.58%, the money they are contributing could be significant. Note that the tax may increase over time and there are no stopgaps to prevent an increase from happening.
For younger workers who earn high salaries, they will likely have paid more into the program than the maximum benefit could ever payout by the time they might need it. For workers who are about to retire, they could be paying into a program that they ultimately will not be eligible for.
The truth is that there are many people who will be left out of this program. The benefits are not portable to another state, so workers who leave the state after many years will leave their contribution behind as well. Non-working spouses and family members are not covered under this type of program, either. In the case of WA Cares, there was a short opt-out window that required workers who wanted to avoid ever paying this tax to purchase a qualifying LTC policy before the deadline. This created a panic buy in the market and the industry struggled with the crush of requests for new policies. The lack of clarity from the government led to concern of many carriers regarding the persistence of policies sold in reaction to this legislation. Ultimately this caused most carriers to temporarily suspend sales of LTC policies in WA state until after the deadline.
A gathering storm: Be prepared
A large number of states either have proposals in the pipeline or are drafting proposals to do something similar to what Washington has done. States currently considering such a move are:
- New York
- North Carolina
As you can see, the concept has spread from west to east. So what lessons can we learn from the rollout in Washington?
Speak to your client
Take the time to talk to your client about their long-term care needs. It is better to have a policy in place before these programs force their hand. The impact on the price and availability of policies in Washington was dramatic in the months before the opt-out deadline. Now that we have seen that process play out, we should prepare our clients ahead of time to avoid the hurdles many people experienced there. While we don’t know where this legislation is going the writing is on the wall. The best way to position your clients today is to review their current situation and the quality options that are still available. This is critically important with younger clients as they could have the greatest exposure.
Mettle is here for you
We are staying on top of this very fluid situation impacting our industry. Let us know how we can help you prepare your business and your clients for potential changes. We can keep you a step ahead of the game and help keep your client’s long-term options open in the future. Mettle is here for you.