According to the National Council on Aging, someone turning age 65 today has almost a 70 percent chance of needing long-term care services during their lifetime.[i] A recent Employee Benefit Research Institute (EBRI) study estimates that a retired couple needs $325,000 to pay for medical expenses in retirement today.[ii] Unfortunately, Medicare provides only limited payments for skilled nursing care or rehabilitation, leaving many people without a financial safety net and forcing them to spend the assets they worked a lifetime to accumulate to pay for their care.[iii]

Long-Term Care Benefits Funded Through Payroll Tax

With the cost of nursing home and other long-term care rising, and with 1 in 3 adults experiencing economic insecurity[iv], the state of Washington has enacted legislation designed to provide financial benefits to Washingtonians to pay for care. The Long-Term Services and Supports Trust Program[v] was designed to provide working Washingtonians with a basic level of long-term care benefits. Signed into law in 2019, this new program will be funded by a payroll tax beginning on January 1, 2022.[vi]

W2 employees in the state of Washington will contribute to the Long-Term Care Trust program, paying $0.58 for each $100.00 in income. So, a worker earning $50,000 annually would pay approximately $24 each month through a new payroll tax to fund the program. In order to qualify for benefits, a worker must have contributed to the fund for at least ten years and must need assistance with at least three activities of daily living (ADL), which include personal hygiene, bathing, toileting, dressing, medication management, eating, body care, mobility, cognition, and transfer assistance. For someone experiencing an unexpected crisis, benefits may be available if the person paid into the program for at least three out of the previous six years.[vii]

Qualified workers will be able to access $100 per day in benefits, up to a lifetime maximum of $36,500, beginning in January 2025, indexed for inflation.[viii] Benefits will be available in traditional long-term care/nursing home settings, but they can also be used to pay home health aides, to install equipment in a home (such as a ramp or an accessible shower), to pay for transportation to/from medical appointments, to have food delivered to homebound persons, and other types of care services designed to help people stay in their homes and communities.[ix]

Option to Opt-Out with Private Long-Term Care Insurance Coverage

While the payroll tax is mandatory for W2 employees in Washington, workers will have the option to opt-out of the program by providing proof of private long-term care insurance coverage. If you have a qualified long-term care policy, you will be able to opt out of participation starting October 1, 2021. All requests to opt out must be made no later than December 31, 2022.[x] Details about eligibility to opt out, and the process for doing so, have not yet been announced.

The ten-member board of the Long-Term Services and Supports (LTSS) Trust Commission, created by the Act, is expected to provide information about opting out, as well as making additional recommendations and decisions about implementation and management of the new program in the coming months.[xi]

To learn more about how this new law may impact you, talk to your financial professional.

 

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

The insurance content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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[i] https://www.ncoa.org/economic-security/money-management/the-80-addressing-the-nations-retirement-crisis/

[ii] https://www.ebri.org/docs/default-source/ebri-press-release/pr-1264-savingstargets-28may20.pdf

[iii] https://responsiblefuture.org/the-ltc-trust-act/#_edn3

[iv] https://www.ncoa.org/economic-security/

[v] http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bills/Session%20Laws/House/1087-S2.SL.pdf#page=1

[vi] https://www.dshs.wa.gov/sites/default/files/ALTSA/ltss/documents/LTSS%20Trust%20Act%20One-Pager.pdf

[vii] https://responsiblefuture.org/the-ltc-trust-act/

[viii] https://www.dshs.wa.gov/altsa/stakeholders/long-term-services-and-supports-ltss

[ix] https://www.thenation.com/article/archive/long-term-care-insurance-washington-elderly/

[x] https://www.ltctrustact.com/

[xi] https://www.governor.wa.gov/boards-commissions/board-and-commissions/profile/Long-Term%20Services%20and%20Supports%20Trust%20Commission

Sources

https://www.ncoa.org/economic-security/money-management/the-80-addressing-the-nations-retirement-crisis/

https://www.ncoa.org/economic-security/

http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bills/Session%20Laws/House/1087-S2.SL.pdf#page=1 

https://www.ebri.org/docs/default-source/ebri-press-release/pr-1264-savingstargets-28may20.pdf

https://responsiblefuture.org/the-ltc-trust-act/#_edn3

https://responsiblefuture.org/the-ltc-trust-act/

https://www.thenation.com/article/archive/long-term-care-insurance-washington-elderly/

https://www.dshs.wa.gov/altsa/stakeholders/long-term-services-and-supports-ltss

https://www.ltctrustact.com/

https://www.governor.wa.gov/boards-commissions/board-and-commissions/profile/Long-Term%20Services%20and%20Supports%20Trust%20Commission

https://www.dshs.wa.gov/sites/default/files/ALTSA/ltss/documents/LTSS%20Trust%20Act%20One-Pager.pdf

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