Discussing LTC coverage within the unknowns of state mandated LTC programs

08/12/2024 — Key takeaways:

• The WA Cares Fund might be in jeopardy of being unraveled
• Is the CA dream of a LTC bill dead, or just on hold?
• Has MN finally nailed down an approach to solving their LTC funding problems?

The WA Cares Fund is the first state mandated, publicly funded long-term care (LTC) insurance program in the nation to be passed and operating. The program, after being delayed, has collected payroll taxes for a little over a year now. However, the WA Cares Fund could be in jeopardy as other states consider how to address their LTC needs.

Legislative sessions tend to be shorter in most states in “even years” since those are also election years, therefore we did not see as much legislative action as we saw in 2023. However, there is still important information to convey. More than one-third of states now show some level of interest in looking into solutions to their own state’s long-term care funding challenges – but that doesn’t mean they are all looking at proposing tax solutions.

Why the Washington Cares Fund might be in jeopardy

Yes, Washington state is back in view. A group called “Let’s Go Washington” has obtained the needed signatures to have Initiative 2124 put on the November 2024 ballot.

The measure, authored by State Rep. Jim Walsh (R-19), is called the “Opt Out of State-Run Long Term Care Coverage Act”. Should Initiative 2124 pass, it could turn the program upside down by making participation in the WA Cares Fund program optional. This would allow anyone currently enrolled in the program to opt-out for any reason and could undermine the solvency of the current program without additional adjustments. Should enough employees choose to opt-out, it could ultimately unravel the WA Cares Fund by de-funding it. The Washington legislature has a couple of options:

• They can propose an alternative initiative to appear alongside Initiative 2124 for voters to choose between. As of this writing, the legislature has not chosen to do this.
• The legislature can also decide to back a “Vote No” campaign against Initiative 2124. For now, this appears to be what the legislature is doing.

If Initiative 2124 were to pass, some employees may consider surrendering their LTC coverage should it not be needed to avoid paying the employment tax. We hope that financial professionals will remind their clients that they made a good decision to buy this important coverage and urge their clients to stay the course and hold on to their policies.

Questions regarding the private insurance exemption

The private insurance exemption in WA has expired. Residents must have purchased an LTC policy prior to Nov. 1, 2021, to qualify for the opt-out. Even those who purchased a qualifying policy within that time frame were required to apply for their exemption certificate with the Employment Security Department (ESD) by Dec. 31, 2022. Moving to WA after the fact does not change the rules. The exemption certificate had to be applied for prior to the deadline.

Updates from California

In 2023, the California LTC Task Force finished their extensive work proposing options for a potential program, and Oliver Wyman Consultants completed their report with alternative features and pricing of the final five options. As the final act of the CA LTC Task Force, they delivered the report to the CA legislature on Dec. 18, 2023¹. However, the deadline to propose new bills to the CA legislature in 2024 expired as of day’s end Feb. 16, 2024 – so there will be no action in 2024. The CA LTC Task Force was officially dissolved July 1, 2024. We will have to wait until at least 2025 to see if there is new movement on this issue in California.

More importantly, as of this writing there is no champion promoting a bill, and no committee assembled to study bill structure or how an LTC policy might need to look to qualify for an opt-out or reduced tax option, if offered. The CA Insurance Commissioner has made it clear that selling LTC coverage to clients using scare tactics or misinformation will not be tolerated². Therefore, financial professionals should take care when discussing LTC coverage with clients.

Updates from Minnesota

Recently, MN contracted a study to solicit recommendations to transform LTSS (Long-Term Services and Supports) and identify funding options³. The first option will be easiest to implement, but it is possible that two or all three options could be implemented over time. The recommendations developed through the stakeholder process include the following:

1. Care Navigation & Support Services. Leverages the state’s existing services, provides strong awareness and education, and supports families and informal caregivers. Encourages Home and Community Based Services (HCBS), where older adults of all types and their caregivers and families may support their needs at a site of care they prefer. Paid for from the MN state budget.
2. A Medicare companion insurance product. Coordinates and funds care needs emerging in retirement. Two options were presented: a voluntary market driven option, or an obligatory option. The compulsory approach would provide $135 a day for one year. Estimated cost, $120 a month starting at age 65. Premiums and benefits would increase 3% annually.
3. A Catastrophic-Lite State Obligatory State Based Insurance Program. Would provide funds to help pay for LTC expenses for five years, after a two-year elimination period. Focuses on home and community-based services (HCBS), but funds would be available for facility care as well. Employed and self-employed would vest into the program through payroll tax requirements. Benefits would be a maximum of $50,000 per year, $250,000 over 5 years – with annual 3% inflation. Estimated cost would be 0.55% to 1.15% in payroll taxes.

Updates from New York

New York proposed two LTC bills again this year. Overall, it still looks much like the WA Cares Fund, but there were similar improvements included, and the self-employed were added as obligatory participants.

However, for purposes of any opt-out, if offered, nothing has changed in regard to the type of LTC policy that would qualify.  New York’s current definition of LTC insurance only applies to traditional LTC insurance. It is hoped that New York will expand their definition of LTC insurance to one that is more extensive.

Budgetary constraints hindered passage of the bill this year, and at this point, the NY legislature is out of session of the rest of the year.

Updates from Pennsylvania

Pennsylvania proposed a bill in 2022 and did so again in 2023 as H 844. Provisions in the bill came primarily from the WA Cares Fund “template,” including a premium tax of 0.58%. A tax exemption for those owning LTC insurance was included in the bill, but with no other details. This is a two-year session that ends November 30, 2024. There has been no movement or committees formed at this point. We will likely have to wait and see if PA tries again in the future with the same bill or another version.

Final thoughts

I wish the LTC industry could come up with as powerful of an incentive to buy LTC coverage as the WA Cares Fund unexpectedly did. When Washingtonians were threatened with a tax, people ran to buy LTC coverage!

For me, the reason I have three policies is that LTC insurance makes you more marketable as a patient. When you consider that 81% of nursing homes receive less than the cost of a Medicaid patient’s care4, and the median Medicaid base payment rate in 2019 was only 86% of the cost of the patient’s care, it is pretty clear that a private pay patient who can pay the full billable rate will be a welcome sight. Since I own three policies, should I need LTC one day, I’m hoping to see big smiles from my caregivers of choice.