Long Term Care State Payroll Tax Update
State Legislation
Currently, seven states are actively considering legislation to address the high cost of long-term care potentially through a long-term care state payroll tax, with two of the most populous states, California and New York, among them. The reason these states are important:
Both are actively moving toward a legislative solution
The cost of care in these states is higher than average
We don’t expect that either state will be able to provide a substantial benefit to pay for long-term care services, which speaks to the greatest challenge in trying to legislate a long-term care benefit: overall cost.
Washingtonians were granted a brief window to establish a qualifying Long-Term Care Insurance policy to circumvent the payroll tax of 58 cents for every $100 earned. This plan, however, was delayed when Gov. Inslee signed a law on January 27, 2022, postponing the program's commencement until July 1, 2023. The payroll tax is now in effect, and the state will no longer provide residents additional time to secure coverage to bypass the tax.
Washington
Washington voters have rejected Initiative 2124, which would have allowed residents to opt out of the state's WA Cares long-term care insurance program. The initiative was defeated with about 55.5% of voters opposing it. Supporters of the initiative argued that it would save residents money and provide more flexibility, while opponents feared it would undermine the program and leave many without a safety net for long-term care. The rejection of the initiative is seen as a significant victory for those advocating for the preservation of the WA Cares program.
Known as the Washington Cares Fund, this legislation, signed into law in 2019, provides access to a lifetime benefit amount that can be used on a wide range of long-term services and supports. The payroll tax for W-2 workers began July 1, 2023. The first benefits are available beginning July 2026.
California
Work has not progressed from the actuarial report by the firm of Oliver Wyman, commissioned by the legislature, which was released on December 15, 2023, along with updated FAQs. There has been no movement from the governor, legislature, or DOI.
Expect significant turnover in the state legislature
New legislature will be sworn in on December 2, 2024
Committee leadership and legislative priorities will likely shift
California continues its push towards a payroll tax model similar to Washington that would fund a minimum long-term care benefit. The California Long Term Care Insurance Task Force provided recommendations regarding the legislation. See the Insurance Market Update below.
The Task Force recommended options for establishing a statewide long-term care insurance program. A presentation of the draft feasibility report was released on December 15, 2022, and is now in actuarial review. The deadline for the actuarial review is the end of 2023.
Early indications are that a proposed tax would be on earned income for W-2 employees. It is unclear yet how an exemption would work if someone owns a qualifying long-term care insurance policy.
Insurance Market Update:
Per the California Long-Term Care Insurance Task Force:
May split the cost of the payroll tax between employer and employee
May also allow an opt-out provision if the employee has a private LTCi policy but there are no firm details on how the California payroll tax exemption will be structured or when it would apply
IMPORTANT: The state may assess the financial impact of changing the deadline for the purchase of opt-out eligible private insurance policies from the Program effective date to the beginning of the year preceding the Program effective date.
