The Comprehensive Advisor Newsletter
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Many people are impacted by long-term care by either personal need or experiencing the need for a loved one. In addition to impacting family dynamics, most people who have experience with long-term care will agree that it has significant financial repercussions.
Many states have started to research and implement a so-called Long-Term Care Tax (LTC Tax). Recently, Washington State became the first state to implement this tax; twelve other states are currently considering it.
To educate you on this emerging trend, we will focus on the LTC Tax passed in Washington in 2019. There is much we can learn from how they approached this tax and how that might lead other states to take similar approaches. It is also quite possible that California will be the next state to rollout similar tax legislation, likely affecting every California W2 taxpayer.
If you would like to share this information with your clients, we have a Long-Term Care Planning Simplified Advisor Kit which includes information about the long-term care tax and an educational presentation. If you have questions, you can reply to this email or schedule a time on our calendar below.
What happened in Washington state?
In 2019, Washington passed the LTC Tax tied to the WA Cares Fund. Here is a summary of the bill:
- People who work in Washington will pay 0.58% of their earnings into the Washington Cares Fund. For example, if someone earns $100,000, they will pay $580/year. Although passed in 2019, the tax has been delayed until July 1, 2023.
- The tax pays for a $36,000 lifetime long-term care benefit. This means there will be $36,000 available for long-term care expenses for everyone paying into the fund. By long-term care cost standards, this is a small benefit considering nursing homes can range from $3000-$6000 per month or more, depending on your area.
- The tax can increase and benefits can decrease over time. The program must be financially sustainable, so adjustments are expected over time.
- A one-time opt-out was granted for owners of private long-term care insurance given it was in place by a deadline. This caused a massive inflow of applications for private long-term care insurance that made it difficult for insurance companies to manage. This led to much longer processing periods and even resulted in many long-term care insurance providers exiting the market entirely.
Is California next?
It seems very likely that California is not far behind. The passage of CA AB 567 established a task force in the California Department of Insurance to explore the feasibility of developing and implementing a statewide insurance program for long-term care services and support. Information is available on the California Department of Insurance website.
What other States are considering a program?
In addition to California, other states - Alaska, Colorado, Hawaii, Oregon, Illinois, Michigan, Minnesota, New York, North Carolina, and Utah - are currently considering state-sponsored long-term care programs.
If you were ever going to talk about long-term care, now is the time!
Although you may dislike the idea of additional taxes, this trend will help drive a much-needed conversation about the costs and responsibility for long-term care. The opportunity this provides is for working people and their financial or insurance advisors to plan and be proactive before legislation is passed. While we can’t be certain the exact same taxes and opt-out options will be included in bills passed in other states, if you have ever considered or had a desire to be educated on private long-term care options, now is the time.
Here are some things to consider:
- Private long-term care insurance gives the client the control to plan a coverage amount that fits their individual situation.
- Private insurance has options that a government plan would likely not have like inflation protection, return of premium, or life insurance if funds are not used.
- By getting ahead of this early, you may avoid potential insurance company restrictions and minimum policy requirements that could come to be in reaction to a state-sponsored program. Especially in CA, where the population is 5 times as large as Washington, we can anticipate that a potential run on private long-term care insurance would substantially change or hurt the availability of this private insurance.
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