The Washington Long Term Care Trust Act is a minimum long term care insurance solution for almost all of the citizens of Washington State. It will be funded beginning in January through a mandatory payroll tax of .58 percent on all W-2 earners in the state. This will give workers a lifetime benefit of up to $36,500, adjusted annually for inflation by Washington’s Consumer Price Index. There is a wide range of benefits, both at home and in facilities, based on the need for assistance in three of ten activities of daily living including cognitive impairment. The self-employed are given an option to opt-into the program, and citizens with private long term care insurance are given a very limited option to opt-out by November 1, 2021.
The concept here is to provide a small long term care benefit and to encourage citizens to buy wrap-around private long term care insurance. This would protect citizens and save the state many millions of future Medicaid dollars.
In my view this noble effort, guided by actuaries from Milliman, got many things right in its design. It’s a mandatory program. It is funded by a progressive tax, so that the poor pay very little and the very rich can opt-out. Its benefits are far-reaching. It has a seventy-five year vision to adjust the program to ensure its financial solvency. It will be administered in a hands-on manner by Washington State government personnel.
However, the Washington Cares Act has run into some difficulties as well. There was strong public opposition to the imposition of the tax, despite the fact that the legislature approved it. No one likes to be taxed. The regulations included the fact that citizens who moved out of state would forfeit their contributions to the fund. In addition, citizens who live out of state, say, in Oregon or Idaho, but work in Washington, would have to move to Washington in order to receive their benefits.
Because of these reasons, there was a huge rush by citizens to purchase private long term care insurance in order to opt-out of the tax. The insurance carriers suddenly got deluged with applications and could not cope with the volume. Many applications were for very small benefits and premiums. The carriers were thus concerned that applicants would cancel their policies once they could show the Washington Cares Act that those policies were in force, as there was no planned recertification that these policies continued to be in force. In addition, applications for small benefits are generally unprofitable due to the costs of underwriting and administration. Consequently, the carriers ceased taking applications almost three months before the closure of the brief opt-out option.
What can others learn from the Washington Cares Act experience? The main take-away is that in its efforts to be all-inclusive and ensure its solvency, the designers of the Washington Cares Act included some elements which were not well accepted by its participants and which might need some revising in the future. The problem is that many of these revisions would result in a shortfall of revenue and could necessitate an increase in the tax.
Here are some areas of concern which need further investigation. First, and above all, there needs to be greater cooperation with the insurance industry. This would include a far longer period to be able to opt-out. There should also be minimum benefit requirements in order for a policy to qualify as an opt-out policy. The insurance industry should also be compelled to recertify opt-out policies on a regular basis in order for a policyholder to retain their opt-out status. Otherwise, the tax would be imposed on them.
Second, Washington State’s citizens should not be penalized if they move out of state. They should at least receive a refund of their premiums. With this method Washington could retain any increases from the inflation clause to cover their administrative costs.
Third, Consumer Price Index inflation may become a weak method to keep up with the rise in the costs of care. In the present environment, CPI inflation is about two percent, and the increase in the costs of care is about four percent. In thirty-six years, at these rates, CPI inflation would result in a $ 200/day benefit in the Cares Act, but a four-hour home care cost of $120 now would increase to $480. The Cares Fund would then pay for less than two hours of home health care. This gap would continue to grow over time. A new method needs to be created to keep up with the rise in the costs of care.
All of these revisions would affect the size of the tax required. I believe that there would be little objection to the increase in the tax so long as the total remained under one percent. There may be other ways to cushion the need for a tax increase, such as inserting a small elimination period before one could receive benefits.
Other states have become very aware of the Washington Cares Act, and there are a number of them, including states with large populations like New York, Illinois and California, that are investigating legislation of their own. California may be the most advanced in their thinking and organization, as it has established a Long Term Care Insurance Task Force which has met three times. The California Task Force intends to submit its recommendations to the Legislature by the close of 2022.
If other states use the Washington Cares Act as its model, which I believe they will, they will attempt to overcome its shortcomings. I have submitted ten recommendations to the California Task Force as a starting point for discussion and revision. I hope that this and input from others will guide the Task Force in creating a program which will benefit many Californians and be adopted in other states. Here are my recommendations:
- Extend the Opt-Out Provision period to at least two years to enable the insurance carriers to handle the crush in applications. California’s population, for instance, is five times that of Washington’s.
- Enact minimum requirements to qualify as an Opt-Out policy. Suggestions:
a. Traditional LTCI…$150 daily benefit, 730 day benefit period, three percent compound inflation.
b. Linked life/annuity with long term care rider…$250,000 death benefit with equal long term care rider.
c. Life with long term care rider…$250,000 death benefit with equal long term care rider.
- Recertify Opt-Out policies at least every other year.
- Promote Opt-In for self-employed and include spouses.
- Include either a 30-day or 45-day elimination period to cushion the size of the tax.
- Include reimbursement for members who move out of state, either with a refund of premium cost or the current value of the account.
- A new formula needs to be created to keep up with the rise in the costs of care.
- Senators of a state should fight in Washington, DC, for Federal matching funds.
- Include some of the regulatory elements of a state’s Partnership for Long Term Care program.
- Don’t call it a tax…call it a premium, a payment, an assessment…anything but a tax.
Others should feel free to weigh in with their recommendations to the Task Force. We should all pull together to create a good program to at least partially solve the long term care conundrum.