Multiple States Considering Implementing Long-Term Care Tax

For many years, state and federal governments have enacted tax incentives to promote the purchase of Long-Term Care Insurance. Following the example set by the State of Washington, numerous states are contemplating implementing a tax on individuals who do not possess a qualifying policy.

More specifically, the "tax" may be a "benefit." The State of Washington was the first in the nation to enact a payroll tax to fund "Washington Cares," a state-run long-term care benefit. Yet, according to critics, it is best defined as a tax since the program provides such a small benefit that it is almost meaningless.

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.

Supporters of the "LTC Tax" argue that the funds generated through the program will contribute to financing long-term care services. However, detractors contend that the provided benefits will have minimal or no significant impact, potentially straining many taxpayers' finances. Moreover, critics raise concerns that many residents may mistakenly believe they possess comprehensive long-term care coverage when, in reality, they do not.

For example, Seattle's average cost of in-home care is around $7100 a month (based on a 44-hour week). Nursing homes in Seattle average nearly $13,000 a month, but the cost is expected to average nearly $25,000 a month in twenty-five years.

Yet, many critics still oppose the LTC Tax in the state. Washington's Initiative 2124, also known as the "Opt-Out of Long-Term Services Insurance Program Initiative," is a controversial proposal allowing employees and self-employed individuals to opt out of the state's Washington Cares Fund. Passage of Initiative 2124 would make participation in the program voluntary, raising concerns about the fund's long-term solvency.

California is making considerable progress toward its own state-funded long-term care program, and other states are close behind. Assembly Bill 567, introduced in January 2023, presents five options under consideration by a task force. However, to be clear, California has not adopted any plan. 

Sources in Sacramento have told LTC NEWS that the earliest a new program could become law in Calfironia would be in 2025. It is anticipated that this program might resemble an enhanced version of the "Washington Cares," addressing some of the concerns that many in California believe exist with the current program.