Video: Washington State Long-Term Care Program: What You Need to Know

Close up of a granddaughter helping her grandfather around the house
Washington State has passed a new law mandating public long-term care (LTC) benefits for Washington residents starting in January 2022. The Long-Term Care Act was created to reduce pressure on the Medicaid system and will be paid for by a 0.58% tax on employee wages. While this program may be appropriate for many Washington State residents, it may not be advantageous for you based on your individual situation.
In this video, Senior Wealth Advisor, Blaine Carr provides insight on the program benefits, tax rate, and ways to qualify for an exemption.

Washington State Long-Term Care Program: What You Need to Know

Video Transcript:

Are you aware that starting in January 2022, most Washington State W-2 workers will be subject to a new 0.58% tax on gross wages?

Hello, this is Blaine Carr with Petersen Hastings. Earlier this year our Governor signed a new bill into law, which creates the WA Cares Fund. This law will force employees to pay into the Fund in exchange for long-term care coverage they might not want, or not be eligible for. In addition, the benefit payout is very small and not a good deal compared to the money many workers will pay into the Fund.

My purpose here is not to speak out against planning for long-term care. I believe everyone should consider the risk of someday needing care, either at home or in a nursing home. This law goes beyond planning because it takes our choice away and money out of our paychecks.

The lifetime benefit provided by the WA Cares Fund is $100 per day for up one year. This benefit totals $36,500 in today’s dollars, and will be adjusted for inflation going forward. To be eligible for the benefit an individual must be vested, a Washington resident, require assistance with at least three activities of daily living, and receive care in Washington State. To vest in the Fund, employees must have worked and contributed to the Fund for: At least 10 years without a break of five or more years; or work three of the last six years and at least 500 hours per year during those years.

Before we get to the tax, let’s look at a few problems with this benefit. First, it only computes to about half the cost of professional nursing care for one year. Sure, many people stay a year or less in a nursing home, but some will stay much longer. Washington workers who live out of state, or who later move out of state, are not eligible for benefits even though they are subject to tax. In addition, some workers who are now close to retirement will not vest, yet they will also be taxed.

The WA Cares Fund will be supported by a payroll tax assessed to all Washington workers who are not granted an exemption. This tax is paid by employees, not employers, and begins January 1, 2022. The payroll tax rate is 0.58% of gross wages, which comes to $5.80 per every $1,000 of wages each year. If you make $50,000 your tax will be $290.  If you make $100,000 you will pay $580. There is no cap on wages with this tax, so if you make $250,000 it will cost you $1,450 per year.

Now I will focus on the two most common exemption categories. First, this payroll tax will not be assessed on those who are self-employed unless they opt into the program. Some of the self-employed, especially those with S-Corporations, earn part of their income as W-2 wages and it’s likely the tax will be assessed on those wages, even though their passthrough income will be exempt. An exemption is also available for those who have their own long-term care policy in place before November 1, 2021. These individuals can apply and receive an exemption as late as December 31, 2022, but would need to do so before the end of 2021 to avoid the taxes being withheld in 2022. The current law does not provide for this exemption in the future, and this has left many high-income workers scrambling to obtain their own policies. Insurance companies are overwhelmed by the large volume of applicants and are concerned that many policy holders will dump their policy after they obtain their exemption. The result, virtually all insurance companies have suspended new long-term care policies in our state.  Employers are still able to access group plans for their employees. I believe State Farm and Allstate still might offer individual long-term care coverage as a rider to life insurance policies.

My recommendation is to think about the following: the amount this new tax will cost you, your anticipated retirement date, whether your wages might change in the future, and your potential need for long-term care coverage. Regarding the need, those retirees with higher levels of income and liquid assets can consider self-insuring. Those with low income and little in liquid assets risk not being able to afford their premiums and are likely candidates for Medicaid. Those in the middle would probably benefit the most from a policy. If you are a high-wage earner, or on track to be so fortunate someday, you should obtain your own policy and file for an exemption from the tax. If you are a low-to-middle wage earner or near retirement you are could better off just paying the tax, but do the math. If you are lucky enough to find your own policy, I do not advise dumping it after you obtain your exemption. This action may come back to haunt you if further substantiation requirements are enacted in the future.

In closing, please be prepared for this new payroll tax. Evaluate whether you would benefit from getting your own long-term care policy. Either way, the WA Cares Fund is here to stay so get used to paying the tax or the premiums on your own policy.  Then focus on your other financial decisions. Complaining about this new flaw-laden law will not help you.

Thank you for tuning in. You should check with an experienced advisor before you implement any of the strategies covered in this video. Please share this video with your friends and family. I encourage you to reach out to us at Petersen Hastings if you would like more information on this topic. Join me next time and we’ll work on some basic estate planning.