Benefits Alert: Be on the Lookout for the LTC Payroll Tax
How Employers can stay ahead of the LTC Crisis with a New Benefit
Are you a Human Resource Employee Benefit Manager, or Employee Benefit Consultant? Remember how PFL/PMFL expanded across the country so quickly and consumed so much of your team’s time and energy? Still having nightmares?
Multiple States Considering Implementing Long-Term Care Payroll Tax
Thirteen states are considering following Washington State’s lead in taxing those who do not own Long Term Care Insurance, including the State of New York.
Washington State’s legislation aims to help address the challenge of Long-Term Care. Washington State employees will now pay a .58% payroll tax (per $100) unless they could provide proof of qualifying long term care coverage. As a result, Employers across the State of Washington scrambled to find a LTC solution to help employees avoid the payroll tax and receive better coverage from the insurance industry.
Washington residents were given a short period of time to secure a qualified long-term care policy in place, as permitted to avoid the payroll tax of 58 cents on every $100 earned. The exception application deadline aligned with the initial programs effective date, on November 1, 2021. Washington State’s legislation implementation was delayed 18 months, to July 1, 2023. The application deadline remained November 1, 2021.
Said another way, an employee earning $100,000 can expect to pay a payroll tax of $580.
What does the Washington LTC payroll tax program provide for a long-term care benefit? Those that do not own a long-term care policy and therefore subject to the payroll tax, will be eligible for a state-supplied lifetime benefit maximum of $36,000 to pay for long-term care services need. Considering the high cost of long-term care services in most states, the Washington plan is barely adequate to cover the cost of care.
New York State Proposes Long-Term Care Payroll Tax
Now that Washington has taken this action, other states are in the process of proposing or implementing their own LTC tax programs. Like the path of PFL/PMFL, New York and California are the states that appear to be closest to add a tax if individuals don’t own a long-term care policy.
New York Senate Bill S9082 would establish a Long-Term Care Trust Program to provide New York workers with state-run long-term care insurance coverage, funded through a payroll tax on New York workers. The purpose of S9082 is to create another method of financing the cost of long-term care expenses, for residents that do not own or can’t afford private long-term care insurance, in the event they are unable to care for themselves due to a loss of Activities of Daily Living (ADLs) or Cognitive Impairment. Essentially, the bill purpose is in part to help alleviate the pressure that long-term care expenses places on the state’s Medicaid program.
The proposed NY Senate Bill S9082 does not provide a large window for individuals to purchase LTC insurance. The bill requires that private LTC coverage be in place prior to the law going into effect, to be exempt from the LTC payroll tax. The NY LTC payroll tax could be as high as 99 cents on every $100 earned; that equates to a $990 payroll tax for an employee earning $100,000.
Why are States Considering Implementing a Long-Term Care Payroll Tax?
The stress on Medicaid is tremendous and expected to increase. Medicaid is funded on a federal and state partnership basis and is the country’s primary payor of long-term care expenses. To qualify for Medicaid benefits, the individual needing care must have little to no income or assets; essentially impoverished. Americans who may otherwise be financially “well”, but fail to purchase long-term care insurance, must pay for their own care (or have family members provide care), which often is a recipe for financial ruin.
A state long-term care program funded via the payroll tax, would relieve some pressure on Medicaid, and provide a minimal level of protection for those that do not own a long-term care policy.
Long-Term Care services are expensive, and the cost is increasing every year. Health Insurance and Medicare to not cover the costs associated with long-term care services.
Considering that the cost of care in a Nursing Home is on average $12,000/month in the Northeast/Mid-Atlantic states, with the average stay in a home of 2.5, the financial impact to a household for one LTC claim can easily exceed $375,000.
The Washington State long-term care tax, which provides up to $36,000 of benefit, doesn’t “scratch the surface” and leaves its residents financially vulnerable.
The Odds of Needing Long Term Care Services:
The risk is significant. 50% of Americans will need long term care services. Further, 40% of those that need care, will need care before turning age 65. Americans are financially exposed to the risk and costs associated with long-term care services.
How Employers Can Help Their Employees:
Affordable long-term care insurance coverage is available as an option to the payroll tax. Comprehensive coverage can be offered as an Employee Benefit leveraging Life/LTC hybrid products. These “hybrid” products are offered on a Guarantee Issue basis, via payroll deduct, customized at the employee level, and are individually owned and portable. As an Employee Benefit, the coverage can be offered on either an Employer-paid or a 100% Employee-paid basis.
These plans meet the need for life insurance protection, in addition to the qualified long-term care benefit exempting employees from the payroll tax. If the employee doesn’t need to use the LTC portion of the plan, the employee would still be eligible to receive the life insurance benefit. And, in many circumstances and depending on an employee’s age, a Life/LTC hybrid plan can provide the same or higher level of protection, for much less than the payroll tax.
The Good News:
The good news for Benefit Managers and Human Resource professionals is that installation of Life/LTC plans is simple with a firm that specializes in these plans. The plan can be installed as a part of Open Enrollment, but more often and best enrolled as a stand-alone enrollment. Coverage can be enrolled leveraging enrollment technology, and/or via one-on-one sessions with a benefit counselor – virtual or in person.
The Final Word:
The Aging of America, high demand for long-term care services, pressure on Medicaid, and new State legislation have all culminated in what can be called a “long-term care crisis”. Resembling a similar path as PFL/PMFL, an expanding number of states are drafting and introducing legislation like the State of Washington’s program. While these programs are designed to alleviate the pressure placed on Medicaid (a state/federal partnership program) by rising long-term care expenditures, the resulting payroll tax is expensive, and another administrative burden for Employers. Further, the coverage amounts provided under the state programs, are insufficient.
Employers can help Employees avoid the payroll tax and secure more comprehensive benefits, by offering an affordable Life/LTC Hybrid Employee Benefit Program. Washington and New York’s programs provide a small one-time window for employees to secure private long-term care coverage to be exempt from the payroll tax. Employers can avoid the blitz and frenzy that Washington Employer’s faced, by pro-actively introducing a Life/LTC Hybrid program. Done right and in advance, Human Resource Employee Benefit Managers and Employee Benefit Consultants can minimize the pain felt with the roll-out and expansion of PFL/PMFL.
Navis Benefits Group, LLC offers Life/LTC Hybrid programs that’s a proven solution for our Employee Benefit Consultant partners, Employers, and Employees.
