Let’s Give Them Credit for Trying

Our most recent posting discussed the looming long term care crisis within our society. This article noted that due to our collective failures to plan, Medicaid has become the default provider and pays for more than 50% of the needed care for America’s elderly and disabled. Medicaid is a federal program which is administered by the individual states, so not surprisingly, this current situation has created enormous strains on state budgets. The state of Washington has initiated the “WA Cares Fund” in an attempt to address the problem. It was rejected twice by voters but came into being via action by the state legislature.  

Program and payroll deductions for the WA Cares Fund begin on January 1, 2022. All W-2 employee wages will be assessed a 0.58% payroll tax to be earmarked for such expenses. Washington residents were given a one-time opportunity to opt-out by purchasing an individual Long Term Care Insurance (LTCI) policy prior to November 1, 2021. Self-employed residents are not required to participate, and non-working spouses were excluded from coverage. Likewise, people who are already retired, or planning to retire in the next few years are ineligible to claim a benefit.

What is the benefit? It is envisioned that qualifying individuals will have a benefit of $36,500. This is a lifetime benefit, however, and appears to leave substantial gaps depending on the form of long-term care needed. The 2020 national median ANNUAL cost for a Home Health Aide is $54,912 and is $72,372 in the state of Washington. A semi-private room in a nursing home has a national annual median cost of $93,072 and a Washington state median of $114,972. When one considers that the average length of long-term care for women is 3.7 years and 2.2 years for men, it quickly becomes obvious that the WA Cares Fund will be barely scratching the surface.   

Other shortcomings are obvious. With typical long term care insurance policies, being unable to perform 2 of 6 “Activities of Daily Living” (ADL) can trigger a claim but the Washington program requires at least 3 of 10 ADL’s. Dementia does not qualify as an ADL in WA Cares. People moving out of the state will lose any previously earned benefit entitlement. Unlike a private long term care insurance policy¹ the premiums (payroll tax) can be increased and/or the benefit can be adjusted downward. The state’s financial modeling assumed that 100,000 Washington residents would apply for exemptions but as of November 2, 2021, more than 300,000 exemptions had been received. Thus, the program is underfunded even before it has officially started so the payroll tax assessment is almost certain to rise.

Twelve other states, including California, Colorado, Minnesota, Illinois and Oregon are considering the adoption of a program similar to the WA Cares Fund. They certainly deserve some credit for not ignoring a widespread problem, but let’s hope they learn from and address some of Washington’s early missteps.

If you would like to learn more about these and other wise financial planning moves, please contact us through our Level 5 Financial LLC website or via phone at 719-323-1240.  This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.  You should consult your own tax, legal and accounting advisors before engaging in any transaction.

¹Traditional long care insurance policies may allow for premium increases, however, there is a great deal of regulatory oversight performed by state insurance commissioners. Insurers must build a case with their regulators of the need for premium increases based on their actual expense experience across an entire class of insureds.