It’s been a long time since pronouncements like ‘unprecedented interest’ or ‘401k-like enrollment numbers’ have been associated with long-term care insurance. But a new initiative in Washington State is pushing
The Evergreen State has instituted the first program of its kind that will pay a benefit when an individual qualifies and home care services are received. It will be funded by a tax, commencing in January 2022, on working individuals in the state, except for those who have met and filed for an exemption because they purchased qualifying LTC insurance.
As a result of the new initiative, major employers based in Washington have been actively promoting LTC coverage. Other companies have been securing voluntary group options for their Washington-based employees with a future commitment to offer coverage to all. Sign-ups have exceeded expectations, causing many insurers to cease accepting applications well in advance of the state’s deadline. In fact, soaring demand caused a temporary halt to sales in early September.
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All of this is giving many people across the LTC insurance industry cause to celebrate; it’s likely the number of new policies issued in 2021 will show its first growth in several years. But will the celebration be long-lived? Will it expand the market and will it spread to other states?
To better understand why a new measure likely was necessary and enacted in Washington, let’s start with a quick recap focused solely on the state. Medicaid is one of that state’s largest outlays. The program, funded by a mix of federal and state dollars, covered some 21% of Washingtonians as of 2019, costing $12.2 billion. Just over a fourth (28%) of this was spent on LTC costs.
With an aging and less-healthy population, most experts anticipate that demand for care will increase. With no state income tax, imposing a tax on the 3.6 million employees was likely one of the easier ways to raise some of the necessary revenue. The Long-Term Care Act (passed in 2019) was designed to do just that.
The program will assess a 0.58% tax on employee wages beginning January 2022. It will collect funds for five years before paying out the first dollar of benefits. Under current law, an individual has one opportunity to opt out of this tax by having a qualifying long-term care insurance policy in place by November 1, 2021.
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A number of insurers offered policies that met the eligibility requirements for the exemption. This included a mix of traditional LTC insurance policies and several of the linked benefit (hybrid) policies, as well as those offered via employer groups. The result has been a growing influx of applications. Indeed the numbers have frankly overwhelmed the ability of insurers to underwrite and issue.
As of this writing, most insurance companies say they will no longer accept applications from Washington residents. Others worry that new applicants may not be issued policies in time to meet the state’s deadline.
Depending on who you speak to, anywhere from seven to 17 states are considering proposals similar to Washington’s program. California has gone so far as to establish a task force that anticipates issuing a report at the end of 2022. How this nation deals with the need for long-term care is deserving of focus and solutions.
A piecemeal solution is, in my opinion, neither the right course nor one likely to gain traction. I am going to temper my enthusiasm until after several million Washingtonians start seeing deductions coming from their paychecks.
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Many forget that included with the passage of the Affordable Care Act in 2010 was a national, voluntary long-term care insurance program, the CLASS Act. It was passed by Congress and signed into law by President Obama. Then mysteriously, virtually overnight, the administration walked away from the voluntary program.
Only time, the willingness of working age adults to pay higher taxes and the political ambitions of those seeking office will determine whether Washington is a one-off program or the true beginning of a broader trend. Stay tuned.
