Long-term care tax looms for nearly all Washington workers
PULLMAN — Workers across Washington state are facing a choice they have to make about long-term care insurance.
And make it quickly.
In 2019, the state legislature created the Long-Term Services and Supports Trust Act, which on Jan. 1, 2022, will begin collecting a tax of 58 cents per every $100 in earnings from most full-time employees in the state to create a long-term care benefit that will help alleviate the pressure on the state’s Medicaid system, which is responsible for paying for long-term care for those who cannot afford it themselves.
Workers, however, can opt out of the new scheme, but must purchase private long-term care insurance before Nov. 1, 2021, and have from Oct. 1 through Dec. 31 to submit an exemption application.
“We’re learning that a lot of individuals and businesses are just waking up to the reality of this,” said Erik Newman, business operations director for Pullman-based Schweitzer Engineering Laboratories (SEL), which employs 5,200 people worldwide.
SEL held a statewide conference call Friday morning to organize businesses across the state to write to Gov. Jay Inslee and ask him to put the implementation of the state’s long-term care program on hold until some of the more glaring problems can be worked out.
“It impacts every employee in Washington state,” Newman added. “We’re encouraging business owners to write letters asking the governor to stop this law.”
Among the biggest concerns business owners have with the new program is the opt-out is one-time only, is only available this year and it collects taxes from out-of-state residents who work in Washington.
“In Washington, we have 2,600 employees, and 1,000 of them live in Idaho,” Newman said. “They are forced to pay the tax but without any of the benefits. This is taxation without representation.”
According to a presentation from New York-based USI Insurance Services, which underwrites and provides insurance for both individuals and companies, to be eligible for coverage under the new program, workers will have to be Washington residents who have worked for at least 10 years at minimum of 500 hours per year.
The $36,500 benefit will cover a maximum of $100 per day for a year of costs related to nursing home care, in-home care or assisted living for anyone unable to care for themselves after private, long-term care insurance is exhausted, but before Medicaid kicks in, according to USI.
Only W-2 employees will be eligible.
Employees can obtain a one-time waiver if they have purchased their own long-term care insurance prior to Nov. 1. However, taxes will be collected from the employee until the start of the quarter following the approval of the waiver.
For example, a worker who submits an application and has it approved on Jan. 2 would pay the long-term care tax through the end of March, according to Amy Anderson, director of government affairs for education with the Association of Washington Business — the state’s chamber of commerce.
And anyone who goes to work in Washington after Jan. 1, 2022, will be enrolled in the system regardless.
“$36,500 does not get you much,” Anderson said. “This will not solve the problem of paying for long-term care.”
Newman said the rules for what kind of private long-term care plan would qualify for an exemption have not been written yet, and so no one knows what sorts of plans would allow workers to successfully petition for an exemption from the tax.
Both Newman and Anderson said insurers are not writing many policies either, given there is no auditing process in place to ensure that once a worker has bought a policy it isn’t canceled or dropped after a year. Because the opt-out is for life.
“Insurers don’t like this law either,” Newman said. “Many insurers won’t write a long-term care policy for someone under 40 because they are afraid they will cancel.”
According to a December 2020 study by the Washington State Office of the State Actuary — the office that oversees the financial soundness of the state’s pension system — the 58 cent tax is only enough to keep the long-term care system solvent for roughly 50 years, rather than the 75 the actuary’s office recommended.
And that has Anderson worried the 58 cent will go up, and may even become an employer tax should the tax reach the 1% threshold — the limit at which a payroll tax becomes an income tax, which if forbidden by the Washington State Constitution.
“They have not thought this through,” Anderson said of the state legislature. “This is frustrating.”
Newman described the long-term care legislation as “a box checking exercise” that allows the legislature to say they’ve solved the problem of paying for long-term care rather than an honest attempt to “hedge against future disaster.”
Anderson is hopeful the committee overseeing the long-term care trust will address the problem of out-of-state residents being forced to pay the tax, and hopes the legislature can address the opt-out issues in a better way.
“We’re working with the legislature and state agencies and we’d like to see at least a pause on this,” she said. “Ideally, repeal would be great; this is horrible legislation.”
Which is why Newman wants workers and business owners to write letters to the governor’s office. Not emails, but actual letters.
“They’re tangible, and they can make a big pile,” he said. “It’s a little easier to ignore an inbox full of emails.”
Charles H. Featherstone can be reached at email@example.com.