“Got Long-Term Care Insurance?”
Learnings from the Washington Care Act:
Staying ahead of the pending New York Long-Term Care Payroll Tax
There’s a good chance the Long-Term Care Payroll Tax will be approved in New York in the foreseeable future.
Perhaps the greatest lesson learned from the Washington LTC Payroll Tax roll out - is that trying to design, market, communicate, educate, enroll, and administer a new LTC/Life Hybrid Employee Benefit within a constricted timeframe - is highly challenging.
To be exempt from the Washington LTC Payroll Tax, residents must have LTC coverage in place prior to the payroll tax effective date. This led to a blitz amongst employers to act fast, and the insurance industry scrambling to meet the last-second demand.
To avoid the blitz and ensuing chaos that Washington employers faced, New York employers should begin to explore and consider LTC/Life Hybrid benefit programs in advanced of the pending legislation’s approval.
With the roll-out of PFL/PMFL across the early adopting states, Insurance Carriers’, Employers’, and Employee Benefit Brokers’ time was greatly consumed with learning the requirements, pricing, and implementing PFL/PMFL programs. And many lessons were learned.
Like the PFL/PMFL roll-out, Washington State’s roll-out of its Washington Cares Act – a new LTC Payroll Tax program – was confusing and chaotic for all parties: employees, employers, brokers, and carriers alike. The Washington Cares Act goes into effect in 2023 after a delayed “start” and is the first of many potential state payroll tax programs for residents or employees that do not own long-term care coverage.
The Washington Cares Act provides residents with an exemption from the payroll tax, provided that long-term care coverage is in place and an application for exception was submitted, prior to the payroll tax’s initial intended effective date (November 1, 2021). Long-term care is the type of care and assistance an individual needs when unable to perform two of the Activities of Daily Living (ADLs): bathing, dressing, transferring, eating, toileting, continence; or when suffering from Severe Cognitive Impairment. Approximately 50% of Americans will needs long-term care services in their lifetime. With the average stay in a Nursing Home lasting 2.5 years at $12,500/month, the financial impact of $375,000 on average, to an individual’s savings and assets can be devastating.
Unfortunately, long-term care services are not covered by Health Insurance or Medicare, in most circumstances. That leaves Medicaid - a State/Federal partnership program – which requires an individual be impoverished to receive funding for care, as the only option for many. Medicaid is the largest funding source for long-term care services. Therefore states, such as Washington, are looking to implement new long-term care payroll taxes to help fund the cost of long-term care and reduce the financial pressure on Medicaid. The taxes are imposed on residents that do not own long-term care insurance, and payroll tax can be significant.
Long-term care insurance can be secured through a traditional long-term care policy, which can be expensive; or a more affordable and comprehensive Life/LTC Hybrid Employee Benefit program. Given the administrative requirements employers face with the new payroll tax, employers are pro-actively offering their employees the option to secure more affordable and comprehensive Life/LTC hybrid coverage as an employee benefit program. This gives employees the opportunity to secure the exemption from the payroll tax.
To be exempt from the Washington payroll tax, the LTC coverage must be in place and application for exemption filed, prior to the payroll tax’s initial intended effective date (November 1, 2021). This led to a blitz amongst employers to act fast, and the insurance industry scrambling to meet the last-second demand. Not able to keep up with the demand, high volume, and time constraints, some carriers turned-off the tap and opted-out of writing more business. Many Employee Benefit Consultants, Employers, and Human Resource Benefit Professionals were left out in the cold. While the legislation’s effective date was delayed to July 1, 2023, the deadline of November 1, 2021 remained.
Perhaps the greatest lesson learned from the Washington LTC Payroll Tax roll out - is that trying to design, market, communicate, educate, enroll, and administer a new LTC/Life Hybrid Employee Benefit within a constricted timeframe - is highly challenging.
There’s a good chance the Long-term Care Payroll Tax will be approved in New York in the foreseeable future. Further, a dozen other states are exploring or already have introduced legislation. The LTC Payroll Tax state roll-out is expected to follow a similar path to that of PFL/PMFL. Based upon insurance industry feedback on the roll-out of the Washington Cares Act, the hope and expectation is that future state regulations will allow for grandfathering of existing coverage.
To avoid the blitz and ensuing chaos that Washington employers faced, New York employers should begin to explore and consider LTC/Life Hybrid benefit programs in advanced of the pending legislation’s approval.
This would allow employers to design and install the benefit program in a more relaxed environment, help ensure that the enrollment goes smoothly, and increase employee appreciation with an effective benefit education strategy.
