Washington’s Long-Term Care Tax: Is Your State Next?
Updated: Jan 14, 2022
Long-term care insurance isn’t exactly the most pleasant topic for anyone, and it’s one that’s often avoided until buying a policy would be too costly to afford any measurable benefit. A new initiative in Washington State, though, is changing that.
Washington recently debuted a pilot service that pays a benefit whenever a qualified individual receives covered home care services. The service will be paid for by a tax on workers’ earnings beginning January 2022. However, those who have purchased qualifying Long Term Care (LTC) insurance can file an exemption.
Because of this initiative, Washington’s employers have been actively promoting Long Term Care coverage. Others are offering group coverage options voluntarily with a promise of guaranteed coverage.
Applications have increased so rapidly that sales of LTC policies were temporarily halted in September 2021.
Will other states follow suit?
Many people in the LTC industry believe that Washington’s initiative is a reason for celebration - a successful initiative in one state is often replicated in other states, leading to a national trend.
Such a trend could be an incredible boon for the LTC industry country-wide. After all, Washington’s initiative sparked the first year of policy issuance growth in more than a decade. Understandably, agents and brokers in other states would be excited as well.
Will this scenario expand into other states, though?
To answer that question, we need to look at what makes Washington’s situation unique.
Medicare is one of Washington’s largest expenses. 21% of Washington residents received Medicare coverage funded by federal and state tax dollars. Washington residents paid $12.2 billion into the program, with 28% of this amount covering LTC expenses.
The Long Term Care Act imposes a 0.58% tax on wages for Washington employees, starting January 2022. Although it will begin collecting funds immediately, no benefits will be paid until the program has been in place for five years.
Workers can opt-out as long as they had a qualifying LTC plan in place by November 1, 2021.
Because there is no state income tax in Washington, paying for the Long Term Care Act was an easier solution than it would be in other states.
Is a Long Term Care Tax coming to your state?
Currently, up to 17 states are examining Washington’s initiative and awaiting initial results to determine if a similar plan could benefit their own states’ residents.
California has formed an official task force scheduled to deliver its initial findings at the end of 2022.
While implementation could be years away, it’s clear that the United States is increasingly seeing the Long Term Care tax as a potential solution to the long-term care crisis that is about to come.
UPDATE: WA Cares Fund Put on Hold
The WA Cares payroll tax for long-term care has been placed on hold. State Democratic lawmakers have filed bills to delay the payroll tax that funds WA Cares until July 2023 and allow more people to opt-out of Washington’s first-of-its-kind long-term care program. Gov. Jay Inslee announced that in light of concerns — including over people who will pay the tax but never receive benefits — the state wouldn’t collect the assessment from employers before April.
Our team welcomes you to contact us with questions on this topic or any others regarding voluntary benefits.