Peter Mu, CFP® ChFC®
Washington State Mandates Long Term Care program, is California Next?
Updated: Oct 1, 2021
Beginning January 2022 citizens of Washington State will be paying an additional tax of 0.58%, on all levels of income, to the WA Cares Fund, which provides up to $36,500 of total benefit for Long Term Care services and support.
Long Term Care refers to a situation where people in their advanced ages need help to live independently or to maintain their current lifestyle. Long Term Care is not necessarily caused by a particular disease. Cumulative complications from multiple conditions, the need for medication management and personal preference can all lead to assisted living needs.
Traditionally Long Term Care is paid for by personal assets, Long Term Care insurance or certain modern life insurance policies with Long Term Care riders. Family members often provide care. Contrary to popular belief Long Term Care expenses are not covered by Medicare.
First in the Nation the State of Washington legislature enacted the Long-Term Services and Supports Trust Act and Governor Inslee signed RCB.50B.04 into law in 2019.
The following is a reprint from the State official website:
“To qualify for benefits from the WA Cares Fund, you must have worked and contributed to the fund for:
At least ten years at any point in your life without a break of five or more years within those ten years, or
Three of the last six years at the time you apply for the benefit, and
At least 500 hours per year during those years. (2)”
Exemptions are given to people who purchase or own their own Long Term Care coverage prior to Nov 1, 2021.
The law puts the burden of payment and record keeping through the payroll tax system. Employers are also responsible for keeping track of exemptions.
In my opinion the this law reflects the urgent need to address the lack of security for Long Term Care coverage we currently face. Many people don’t think about Long Term Care costs until later in retirement when unfortunately options are limited and expensive. Washington estimates that “7 in 10 of us will need Long Term Care during our lifetimes. (6)” The law is well-meaning but like many other government sponsored programs it is the result of partisan debate, negotiations and a balance between contradicting beliefs of a government’s role in our society. It is a drop-in-a-bucket attempt to resolve a very serious social economic problem we face.
The total benefit of $36,500 (total, not monthly) is a not nearly enough. According to Genworth the average monthly cost of care for the San Francisco Bay Area ranges from about $6,000 for at home care to over $15,000 for a private room (4). If California enacted a similar law it will not make a significant difference for the people.
The law also permits future increase of the initial premium (3) to ensure solvency of the program.
The uniform application of this tax on all income levels also introduces problems like any flat-tax plan, higher income individual will be paying much more into the plan while getting the same benefit cap. The State’s official website features a benefit calculator that for $35,000 annual income the annual premium is $203. while people with $350,000 income pay exactly 10x the premium, $2030 a year or $169.17 a month.
The installment of this new government measure should serve as a stark reminder of the seriousness of our current Long Term Care problem. Nearly 100% of the people I meet do not have a plan to pay for Long Term Care. I hope that it is obvious now that simply having more money and putting more stress to your investments, taking more risk is not the solution. The government will take a bigger and bigger bite out of your returns.
Implementing your own Long Term Care insurance doesn’t have to reduce your retirement income. In contrary it will eliminate the need for a large “emergency” fund so more assets can be designated for retirement income production. By transferring this risk to the insurance companies retirees can also afford to take on a higher risk profile in their investments and often leads to better outcomes (5).
The best time to prepare for Long Term Care is when you are young. Either you tuck away additional savings and invest for it or use some type of insurance product, all of which will depend on your health records. The younger and healthier you are the cheaper it is.
In the past decades I have worked with many families to find a solution for Long Term Care. Modern life insurance contracts that offer Long Term Care riders allow owners to advance a portion of their death benefit for Long Term Care purposes and have become very popular for family who prefer to have a cost-recovery method in case Long Term Care was not necessary.
Your financial coaches at Wealth Cairn are well-versed in the conversations to protect your income and your lifestyle. Give us a call or book an appointment online to share your thoughts.
Citation 1. https://wacaresfund.wa.gov/why-wa-cares/
Citation 2 https://wacaresfund.wa.gov/earning-your-benefits/
Citation 3. https://app.leg.wa.gov/RCW/default.aspx?cite=50B.04.080
Citation 4. https://www.genworth.com/aging-and-you/finances/cost-of-care.html
5. Many factors such as market return, risk profile and taxation contributes to the production of retirement income. It is not possible to predict these factors and this assertion is not a guarantee. Careful planning is necessary to optimize outcome. Citation 6. https://wacaresfund.wa.gov/