How Can You Opt-Out of the Tax?

If you are employed, there is only one way to permanently opt-out of the WA Cares Fund and its new career-spanning payroll tax: you must have purchased long-term care insurance before November 1st, 2021.

For details on opt-out rules currently in development, please see our dedicated page on the subject.

To compare your private alternatives to the WA Cares Fund, please inquire here.

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WA Cares Fund

As a first-of-its-kind program in the nation, a compulsory short-term care benefit was signed into law by Governor Jay Inslee (D-WA) effective July 28th, 2019 following approval in the House (55-41) and Senate (26-22).  We're sure you have questions...

What

  • Short-term care benefit, publicly funded by a 0.58% payroll tax on all wages and remuneration, withheld quarterly by employers
  • Benefit is vested by individuals who work a minimum of 500-hrs/yr and who pay premiums for at least 10 years (without a break of 5 consecutive years) or for 3 within the last 6 years (from the date of application for benefits)
    • To permanently vest, an individual must pay taxes for 10 years. Those who've paid for only 3 within the "last 6 years [from the date of application for benefits]" will vest on a temporary basis, and can un-vest. This is why there will be a surge of claims on 1/1/25 (exactly three years into the program), which will then taper off.
    • Employees who pay WA Cares Fund taxes for fewer than 10 years (eg because they are within 9 years of retirement) run the risk of never permanently vesting for benefits (though they may be able to qualify under the temporary rules for the first few years of retirement)
  • Providers reimbursed directly at Medicaid-comparable rates
    • Benefits may be constrained: "a service or supply may be limited by dollar amount, duration, or number of visits"

Who

  • Mandatory for all W-2 employees in Washington State (except those not otherwise explicitly exempt, eg employees of the US gov't)
    • A federally-recognized tribe may elect to collect the premium assessment for its employees; such tribes may also opt-out of the WA Cares Fund at any time, for any reason
    • Employees and employers who are parties to a collective bargaining agreement in existence as of Oct 19th, 2017 (ie unions) are not required to participate unless or until the agreement is re-opened or re-negotiated, but may choose to
  • Self-employed, independent contractors, sole proprietors, partners, and joint venturers may "opt-in"
    • Opt-ins must be made by Jan 1st, 2025 or within 3-years of first becoming self-employed for the first time; opt-ins would be irrevocable
  • Those who are currently retired do not pay premiums and will not qualify for benefits
  • Private LTC insurance policyowners may "opt-out" of the program permanently by applying for an exemption between October 1st, 2021 and December 31st, 2022
    • LTC insurance must be owned or "purchased before November 1, 2021"
    • The term "purchased" is not defined in the law, but when the Employment Security Dept was asked to clarify the deadline, they replied "an application [for insurance] alone does not provide [qualifying] coverage. Coverage must be in place."
  • Oregon and Idaho residents who earn income in Washington are expected to pay the WA Cares Fund payroll tax, but will not be eligible for benefits unless or until they later move to Washington.

When

  • Office of the State Actuary must make recommendations to ensure solvency by January 1st, 2021
  • The State must create an educational outreach program to employers to ensure employees are aware of the WA Cares Fund (and that payroll deductions are imminent) by October 1, 2021
  • First payroll deductions begin January 1st, 2022
  • Self-employed and independent contractors may opt-in beginning January 1st, 2022
  • By December 1st, 2022, the state must apply for a demonstration waiver from CMS, and report to the legislature on its status
  • Public outreach will begin in 2024
  • On Jan 1st, 2024 and biennially thereafter, the tax rate is reset (see below)
  • First claim for benefits can begin on January 1st, 2025, approved services "must be available"
  • The LTC Trust Act Commission will issue its first report on participation, benefits paid and Medicaid savings beginning December 1st, 2026
  • State Auditor to complete first comprehensive evaluation of the Trust Program by December 1st, 2032

Where

  • Only Washington residents can qualify for benefits
  • Residents who move out of state for 5 or more years may forfeit both benefits and premiums
    • Important Caveat: this five year "divestiture" provision does not appear in the Trust Act as passed, but is reflected in the "Base Plan" upon which the WA Cares Fund's 0.58% payroll tax rate was modeled. Like the Act's elimination period (priced at 45-days, but enacted as 0-days), until the Legislature fixes this mistake, the WA Cares Fund remains underfunded

Why

  • Washington will spend $4b/year on Medicaid-funded LTC by 2030, by which time the WA Cares Fund is projected to save approximately $12.5m/yr, or ~0.31% of Medicaid's budget.
    • To put this number in context, in the same year, the program's administrative costs will run ~$89M (per Milliman).
    • To put this $12.5m in context another way, the WA Cares Fund is expected to collect approx. $1b/yr in taxes.
  • The state's 850,000 unpaid family caregivers face financial insecurity: nationally, 20% of family caregivers spend an average of 20% of their own income on out-of-pocket caregiving costs
  • Family caregivers who leave work lose an average of $300,000 in income and benefits

FAQs

How does the WA Cares Fund work?

  • Benefits are paid in $100 "stackable" units, up to a $36,500 lifetime maximum
  • Beneficiaries must need assistance with a minimum of 3 Activities of Daily Living ("ADLs"): medication management, personal hygiene, eating, toileting, transferring, body care, bathing, ambulation/mobility, dressing, and cognitive impairment
    • The payroll tax supporting the WA Cares Fund is based on a different benefit eligibility standard than what lawmakers enacted
  • Though legislators forgot to include it in the law, the Trust Act was priced with a 45-day elimination period
  • Providers must be on a Dept of Social and Health Services-approved list

Which kinds of LTSS services are covered?

  • Funds can be spent on nursing facilities, residential settings like assisted living and adult family homes, professional caregiving like home health care, wheelchair ramps, emergency alert devices, medication reminders, training for family, Meals on Wheels, rides to doctor appointments, dementia education, caregiver support, care coordination
  • Family members may qualify upon receiving 21 - 35 hours of formal training (depends on situation)
  • Audits are required to ensure that only approved services from registered providers are paid: the Health Care Authority is required to recoup inappropriate payments

Will benefits increase to keep pace with inflation?

  • The benefit unit (initially $100) "must be adjusted annually at a rate no greater than the Washington Consumer Price Index"
  • Each year, an 8-person council will vote whether to increase or decrease the benefit unit ("to assure solvency")

Will rates increase?

  • There is no guarantee that the payroll tax will remain fixed
  • The law sets the tax rate at 0.58% initially, then at a rate "no higher than 0.58%" as of Jan 1st, 2024 and biennially thereafter
    • The pension funding council must set the premium rate "at the lowest amount necessary" to maintain solvency
  • So while the rate returns to 0.58% (or lower) each Jan 1st of even-numbered years, it can rise (and may have to) during the 24-month period between "resets":
    • "If the premiums established in this section are increased, the legislature shall notify each qualified individual...and describe the plan for restoring the funds so that premiums are returned to fifty-eight hundredths of one percent of the individual's wages."

Is it a good deal?

  • According to the outside actuarial firm contracted by the state to review the WA Cares Fund, approximately 45% of state residents (representing 75% of our wage base) could receive comparable coverage on the private market for equal or less money.
  • The analysis above examined only dollars and cents: it did not make a qualitative comparison between the state's pilot project vs coverage available on the private market. For example, some consumers will value the following features, which the WA Cares Fund does not provide:
    • portability outside Washington
    • coverage outside the United States
    • inflation protection greater or less than CPI
    • elimination period options
    • ability to cover partners and spouses
    • ability to cover retirees and non-working applicants
    • cash benefits
    • return of premium
    • shared care
    • partnership protection
    • contracts under jurisdiction of the Insurance Department, underwritten by authorized carriers, via licensed, trained and regulated producers

A new tax-- did voters approve this?

  • Washingtonians rendered their verdict when they voted on Advisory Vote #20 during the November 2019 General Election: "The legislature imposed, without a vote of the people, an additional wage premium for long-term care services, costing an indeterminate amount in its first ten years, for gov't spending. Should this tax increase be repealed or maintained?"
  • This Advisory Vote failed badly in 38 of 39 counties across the State-- King County being the lone outlier.
  • As an Advisory Vote, it carried nothing more than symbolic weight-- a message to Olympia. LTCA reached out to a number of key legislators behind the Trust Act for comment, but none would respond.
  • When we put our questions to Trust Act stakeholders via the media, we were told, "It changes nothing."

Doesn't Medicaid already cover LTC? Why do we need the WA Cares Fund?

  • Medicaid does pay for most long-term care received in Washington State
  • To receive Medicaid-covered long-term care, an individual must generally have home equity no greater than $603,000 (2021) and annual income no greater than $85,788 (2020); there is no limit on uncountable assets
    • Because of its generous allowances, Medicaid has been dubbed "free inheritance insurance" for the middle-class and wealthy, whose easy access creates a chronically-underfunded program that struggles to care for the truly needy
    • The state could collect nearly $47m/yr in non-tax revenue by enforcing estate recovery (as required by federal law), refilling Medicaid's coffers for future beneficiaries
    • Since our taxes fund Medicaid, some consumers eschew private LTC insurance, not wishing to "pay double" (this is the infamous "Medicaid Crowd-Out Effect")
    • Some debate whether the WA Cares Fund will create another "crowd-out effect" or worse-- lead some Washingtonians to believe they are covered for long-term care when they are not
  • Washington splits the cost of its Medicaid provider reimbursements 50/50 with the federal government, but pays 100% of the cost of its Trust Act reimbursements
    • That is, on a dollar-for-dollar basis, WA Cares Fund benefits are twice as costly for each resident

Which LTC insurance policies qualify for an exemption?

  • The WA Cares Fund limits the exemption to policyowners of "long-term care insurance"
  • The Employment Security Department's proposed exemption rules require an employee to attest they own LTC insurance "as defined in RCW 48.83.020."
  • ESD has reported: "It is up to the individual who is applying for an exemption to ensure their plan meets the definition of long-term care insurance."
  • ESD has reported: "[We] will not be verifying if plans meet the requirements, but we do have the ability to audit and request additional information to approve an exemption if necessary."
  • When asked about minimum benefits, the Trust Commission has reported "there are no standards of equivalent coverage that have to be met," while ESD reported, "there is no minimum requirement of coverage under RCW 50B.04.085 for private long term care insurance policies."

Where can I read the full text of the Trust Act for myself?

  • The Washington State Legislature houses links to both the "adopted and engrossed" version of the Bill (1087-S2 AMS ENGR S3352.E), as well as an amendment (SB 6267) which substantially modified the original Bill.
  • On 4/21/21, Gov. Inslee signed SHB 1323, enacting a package of recommendations forwarded to the Legislature by the Trust Commission.
  • SJR 8200 can be read and tracked here, which is the proposed Constitutional Amendment allowing Trust Funds to be invested in equities-- since residents failed to ratify it in Nov 2020, stakeholders intend to put it back on the ballot in Nov 2021 (update: it failed to advance in the 2021-22 session).

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