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.
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.
You can see the more detailed legislation for WA House Bill Report 2SHB 1087 or review the WA Cares Fund website here.
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.
What should you consider?
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 or your clients 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 LTC insurance gives you the control to have coverage that fits your and your family’s individual situation.
- Private LTC insurance has options/benefits that a government program almost certainly will not have like inflation protection, return of premium or death benefit if LTC 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 in 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.
The New Age of Financial Advice
The financial advice landscape has changed, and consumers want a comprehensive client experience. An experience centered on total financial life planning. The days of having an insurance agent, investment adviser, and other financial professionals providing fragmented advice are over. I believe a financial advisor is the ideal person to deliver the comprehensive financial advice people seek. Discussing topics like long-term care should be part a financial advisor’s planning process as it helps clients navigate important financial life events that go beyond investment management. The bottom line is these conversations are what clients want from their financial advisor in the new age of financial advice.
About The Author
Matt Meyer is the Founder of The BluePrint Insurance Services. The BluePrint’s mission is to be the premier insurance partner for RIAs and comprehensive financial advisors. The BluePrint provides an operational insurance platform that allows our partners to provide the highest level of insurance access and support. The BluePrint's goal is to increase revenue, build enterprise value and help create a more comprehensive client experience. The BluePrint’s consultative approach is delivered by a team of experienced professionals that have had longstanding careers in the financial services industry. Their experience has been in management roles working closely with advisors, business owners, CPAs and attorneys. They have successfully established themselves as a forward-thinking and adaptive group. To learn more, please visit The BluePrint’s website.
The BluePrint was acquired by Lockton Affinity in 2020. Lockton Affinity, an affiliate of Lockton Companies, was formed in 1987 to meet the dynamic, specialized insurance needs of affinity groups, non-profits, associations and franchises. Today, Lockton Affinity is one of the nation’s leading program administrators, serving a wide array of industries ranging from small business, financial institutions and franchise businesses to fraternal organizations and common-cause groups.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
