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Policy Matters

Second Quarter 2021

NEWS YOU CAN USE FROM THE EXPERTS AT LLIS

Eyes are on Washington now (employers, employees, and other states). The state that brought us Starbucks, Jimi Hendrix, Bing Crosby, and apples passed a law mandating long term care (LTC) benefits for all residents and it’s coming fast. It’s the nation’s first public state-operated long term care insurance (LTCi) program, designed to relieve pressure on the state’s Medicaid LTC expenditures and to be paid for by a .58% tax on employees’ wages.

There IS a way your Washington state clients can opt out of the tax and benefits:

Have an LTCi policy (as defined in RCW 48.83.020)

Key differences between Washington LTC tax and an LTCi policy:
Washington LTC tax LTCi policy
Your clients must live in WA to get benefits (even if they’ve paid in for years) Travels with your clients no matter where they live
A one-size-fits-all plan Tailor for your clients’ needs: elimination period, benefit amount, inflation option, partner discount, shared care, home health care, state partnership plans
Your higher-income clients benefit more from opting out because the tax is based on their income, but the LTC trust benefit amounts stay the same. So they can end up paying a lot for a little.
No cap on wages for calculations (All wages and remuneration, including stock-based compensation, bonuses, paid time off, and severance pay, are subject to the tax) Choose how much you want to spend on a policy
The payroll tax is paid only while the Washington state employee is working Premiums are paid for the Washington state employee’s lifetime
If Washington state raises tax rates, more money out of your clients’ pockets More comprehensive coverage, and no effect if Washington raises tax rates

Clients who should consider opting out of the Washington tax include those who:

  • Can afford to purchase a more robust LTCi policy for less premium than the payroll tax
  • Plan to retire before they would become vested in the state plan (normally 10 years)
  • Plan to retire outside of Washington state or want the option since they must be Washington residents to receive benefits; traditional and Hybrid LTCi policies move with the policyholder
  • Are new to the workforce (meaning they’d pay into the fund for decades and their tax payments would be higher than the benefit they would receive)
  • Are self-employed and considering returning to work for another company as a W-2 employee (and then subject to the tax)

But I don’t have any clients in Washington state.

It’s still a good idea to keep an eye on how this unfolds; it may become a blueprint for other states or even a federal level plan. According to the Washington State Department of Social and Health Services: “By reducing the burden on the state’s Medicaid system, the Long-Term Services and Supports Trust Act will save taxpayers $3.7 billion by 2052.” Because Medicaid is the largest payer of LTC costs in the U.S. today and states administer their Medicaid spending, all eyes will likely be on how Washington does over the next few years, thinking billions in savings!

Key dates:

  • November 1, 2021: Date an individual LTCi policy must be in place to opt out of the LTC tax
  • August 1, 2021: Date your clients need to begin LTCi underwriting with LLIS LTCi applications can take from weeks to months, so time is of the essence (this isn’t like the Gecko’s 15 minutes could save you 15% or more); there are a few million working adults in Washington state weighing their options
  • October 1, 2021-December 31, 2022: Applications accepted by Employment Security Department (ESD)
  • January 2, 2022: Date the .58% payroll tax begins
  • January 1, 2025: Program benefits will first become available So they must pay for years before they can receive any benefits. A traditional LTCi policy’s benefits are available immediately; a Hybrid policy’s benefits become available immediately.

Learn more about the new mandate here and here:

  • Work requirements to be eligible to receive benefits
  • How your small business clients can find out if their employees have opted out
  • Self-employed Washington residents
  • Collectively bargained employees
  • Second homes
  • ERISA preemption

How much LTCi coverage do my clients need to opt out?

We’ve been asked this question a lot. The statutes give very little guidance, other than it should be LTC coverage that would last at least 12 months. So in the absence of guidelines, our recommendation is that your clients’ individual LTCi plans meet/exceed the benefits provided by the state’s plan. Here are a couple of examples:

What can I do for my clients?

Contact Jill MacNeil now for questions or quotes and to get applications started ASAP if you feel an LTCi policy would be best for your clients.

SOLUTIONS AVAILABLE THROUGH LLIS

Term Life Insurance | Low-Load Universal Life (Individual & Survivorship) | No Lapse Guaranteed Univeral Life (Individual & Survivorship) | Long Term Care Insurance | Disability Insurance | Critical Care Insurance | Low-Load Variable Annuity | Immediate and Fixed Annuities | Low-Load Variable Universal Life | Hybrid Life/LTCi | Hybrid Annuity/LTCi

(We recommend low-load permanent life insurance and annuities when possible)

(Not all policy types available in all states)

For a list of current providers, visit the Advisor Tools section of our website and click on "Insurance Companies We Work With".

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