California has created a Long Term Care Insurance Task Force to explore how to fund a state-wide insurance program to help Californians address future long term care costs.
California is not the first state to consider legislative action for long term care. In 2021 the State of Washington passed the Long Term Care Trust Act which established the WA Cares Fund and implemented a payroll tax of $0.58 per $100.00 of wage income to fund long term care benefits. All individuals that work in the State of Washington and are covered by the family and medical leave law are taxed at .58% of income. In exchange for the payroll tax, Washington made has made available a very small amount of benefit ($100.00 day, 12 months of coverage, $36,500) to help its residents with their long term care costs, if needed. Washington did provide an opt-out exception for employees that owned private long term care insurance before November 1, 2021.
Other states that are currently considering implementing a long term care payroll tax are Alaska, Colorado, Hawaii, Oregon, Illinois, Michigan, Minnesota, New York, North Carolina, Pennsylvania, and Utah.
In 2021 we saw an unbelievable flood of long term care insurance applications from Washington employees seeking to avoid the state payroll tax. The long term care insurance underwriters were unprepared for the application deluge and actually stopped selling policies to all Washington residents because the insurance companies did not have the internal resources to handle what materialized.
Washington residents were upset, mostly about the tax, but also about the inability to buy coverage to escape the tax. To be fair, however, it is not the insurance companies responsibilities to help individuals avoid a state payroll tax.
Washington has 4 million employees. California has 16 million employees.
I can't even imagine what will transpire if California moves in this direction.
California Long Term Care Task Force Recommendations
Like Washington, the California LTC Task Force has recommended a payroll tax to fund California's program with an opt-out provision if the employee purchases private long term care insurance before the program's effective date.
A feasibility report was released last December 22022 which included several recommendations including:
- A progressive payroll tax up to 2% of wages. The Task Force is still deciding upon whether there should be a cap on the income tax.
- A possible split of the tax responsibility between employers and employees.
- An opt-out provision for individuals covered with private insurance by a certain date; if after the effective date, employees could qualify for reduced contributions to the program if the policies met certain standards and were periodically recertified.
- The program could cover informal caregiving by family members if certified with caregiver training
- Domestic or international portability is being considered.
The task force is projected to release a final recommendation report in January 2024.
Of course, the California legislature is not bound to accept the final recommendation.
The CA legislature could modify the recommendation, or completely reject the recommendations.
The recommendations are presently undergoing an actuarial review.
The Proposed California Payroll Tax Long Term Care Benefits
In reviewing the actuarial report, there are 5 program designs that are being considered:
- Supportive LTC Benefits - $1500 monthly benefit for 2 years, maximum $36,000
- Home and Residential Care For Older Adults- $4600 monthly benefit for two years, maximum $110,400
- Lower Range Benefits - $3000 monthly benefit for 1 year, maximum $36,000
- Mid-Range Comprehensive Benefits - $4500 monthly benefit for 18 months, maximum $81,000
- Higher-Range Comprehensive Benefits - $6000 monthly benefit for 2 years, maximum $144,000
It appears that the Task Force is favoring more of the higher comprehensive programs, such as # 4 and # 5. However, the messaging is that the higher comprehensive programs will require a payroll tax between 2% and 3.5% of income, not a small percentage such as Washington's 0.58%.
There is also some messaging from the actuaries to limit the opt-out ability from the program effective date to the beginning of the year preceding the effective date.
Washington experienced such a significant number of employees opting out through the purchase of coverage prior to the effective date, that the actuarial soundness of the State of Washington plan was impinged upon.
Long Term Care Considerations For California Employees
If the Washington Cares Fund experience is any guide, I would imagine that most California employees with medium to higher income will want to opt out of the program through the purchase of private insurance.
If the payroll tax is a progressive tax and approaches 2% or higher of income, most healthy employees ages 35 -55 will be able to buy significantly more coverage privately than what California is likely to provide for 2% of income.
Or taken another way, for the amount of coverage that the State of California will ultimately choose to provide for its state employees, a healthy California employee will be able to purchase the state provided insurance level for much less than 2% of income.
If you are employed in the State of California and have been thinking about long term care planning, possibly now is the time to take action to obtain meaningful coverage.
It is important to also keep in mind that there is much less product availability in California than in the remaining States due to regulatory delays in California in approving product that do not exist elsewhere. So, if we have issues with underwriters not accepting applications from California residents as what we experienced in Washington in 2021, there might be less avenues for the employees to buy coverage if a deadline exists. Being proactive versus waiting until the last minute would be prudent here, especially if buying long term care insurance has already been on your mind.
Get Independent and Unbiased Long Term Care Insurance Advice And Quotes
If you would like to learn more about your options with long term care insurance plans, please contact me at (800) 891-5824. I have helped guide consumers such as you for 26 years. I work with all of the leading underwriters in the arena including California underwriters such as Nationwide, Lincoln, OneAmerica, Mutual of Omaha, National Guardian, Thrivent and more. For free quotes, please complete my online request form. Or if easier for you, please use the link below to my calendar to schedule a call. Thank you for reading my blog.
Jack Lenenberg, J.D.
California License # 0H07738