With the number of Americans over age 65 set to exceed the number of Americans under age 18 by the end of this decade, long-term care is gaining attention as a serious health issue. Hence, several state legislatures are considering mandating long-term care insurance.

This article provides an overview of the hiccups of implementation in Washington, what’s proposed in California, and what California employers can learn from the Washington program.

Long-Term Care in the US

Long-term care involves various services designed to meet an individual’s health or personal care needs over a period of time. The services help people live as safely and independently as possible when they cannot handle daily activities alone.

People need long-term care when they have a chronic health condition or disability. The need can arise suddenly, such as after a stroke, or it can develop more slowly, such as someone becoming frail due to a worsening disability or disorder.

Long-term care insurance helps cover the costs of that care. Most policies will reimburse the policyholder for the care given in various places, including:

• Their home
• A nursing home
• An assisted living facility
• An adult daycare center

People cannot purchase an individual policy if or when they need it—they won’t qualify for long-term care insurance if they have a debilitating condition, and many carriers won’t approve applicants over age 75.

Since Medicare and private health insurance plans do not pay benefits for long-term care, individuals without long-term care insurance must pay for it out of pocket, with their assets, or under a Medicaid arrangement (such as Medi-Cal in California).

Long-Term Care Insurance in Washington: Scrambling for Private Policies

Washington was the first state to legislate a payroll tax of $0.58 per $100 on income to fund a long-term care benefit of $36,500 over the policy’s lifetime and a maximum of $100 per day. (Companies have the option to pay the tax, but few have elected to do so.)

Most Washington residents weren’t aware of the legislation, called the WA Cares Fund, until news headlines revealed how companies and individuals were scrambling to find private policies that would allow them to opt out of the state plan by the deadline and thereby avoid the tax. Overwhelmed insurance companies stopped offering products, and many policies could not be issued before the November 1, 2021, tax exemption deadline.

Here are some of the details of the WA Cares Fund:

• The tax is for employees only, and there is no income cap.
• Benefits are payable only for Washington residents receiving services in the state.
• Workers who live out of state, workers on non-immigrant visas, and military spouses can choose to opt out of the program.
• Benefit recipients must need assistance with three or more activities of daily living (ADLs), while private individual insurance typically requires only two.
• The lifetime maximum benefit is $36,500 (adjusted annually for inflation).
• The collection of the tax begins in July 2023.
• Benefits will become available for qualified, eligible individuals in July 2026.

Long-Term Care Insurance in California: A More Flexible Program

The state of California has created a task force to recommend options for establishing its own state long-term care insurance program. The task force appears to be recommending a more flexible program than the WA Cares Fund.

Preliminary recommendations include the following:

• Effective January 1, 2025, with a potential 12-month lookback for private coverage to apply for a tax exemption
• An opt-out provision or a no opt-out, only lower tax option if a policy is purchased before the program is enacted
• Reduced program contributions if a policy is purchased after program enactment
• The program pays primary to Medi-Cal, but secondary to Medicare or private insurance when such benefits exist
• Assistance required with two ADLs needed for qualification
• Possibility of both employer and employee contributions
• Payroll tax up to 2% with no income cap

If the program does end up effective January 1, 2025, a 12-month lookback would mean private policies must be in place by January 1, 2024. This brings up several questions:

• What are the criteria for a private plan that will meet exemption requirements?
• With California being a much larger state than Washington, will the California long-term care insurance market be flooded like Washington’s, and will individuals get locked out of securing a private policy?
• Will individuals have to keep their plans to meet tax exemption every year?

The task force submitted a feasibility report to state leaders on December 23, 2022. The report is currently undergoing financial analysis by the California Department of Insurance (CDI). An actuarial report will be submitted to the state legislature by January 1, 2024.

Responses to Long-Term Care Legislation

The Woodruff Sawyer team will continue to study and monitor how states respond to long-term care insurance needs. From our experiences with the Washington program, we found employers who were best prepared for the Washington program’s rollout had done many (if not all) of the following:

• Acted early. In Washington, many carriers were overwhelmed by requests, and many last-minute requests for quotes/policies were left unfulfilled. Also, as the opt-out deadline neared, some financial advisors began requiring deposits to underwrite individual policies.
• Understood annual tax implications versus benefit coverage and premium. As seen in Washington, the buying decision process became more of a tax avoidance strategy rather than purchasing a long-term care benefit.
• Researched the differences between the Washington program and a private plan to determine what is best for their situation. Keep in mind that private plans can be group or individual plans.
• Considered offering a group plan to all employees or a carved-out class of employees, such as to higher earning executives/the C-suite.
• Learned about the pros and cons of an employer contribution versus a voluntary contribution.

We advise our clients to proactively evaluate their options for long-term care insurance.