Be careful dealing with long-term care

Photo illustration

Photo illustration

At the same time the state is requiring residents to buy long-term care insurance providers are running away.

“Almost all have left the state,” John Carney of Carney-Cargill in Bainbridge Island said.

State Farm Insurance agent Kyle Bryce said many companies stopped selling that product years ago because the premiums were too high as the cost of long-term care skyrocketed.

Because a new state law requires it, companies brought it back, but in limited numbers.

Carney isn’t able to sell it now, but once the Nov. 1 deadline hits it will be available again.

Bryce said so many people bought the insurance once they found out about the law that it’s going to take months to process all of the applications. That’s why if you haven’t purchased private insurance yet, you probably won’t be able to by the deadline.

So, what’s a person to do?

“My advice is to call your state legislator,” Carney said, adding he’s received up to 100 calls in the past week. “People are very, very angry about this.”

He said the legislature is going to have to make some changes in the law. He said it’s good that awareness has been raised about the problem of long-term care, but this is an “ill-conceived tax.”

Bryce said, “It’s a good first step” to raise awareness. “But I imagine there will be changes to it.”

Carney said the problem is huge; it’s the leading cause of people losing their homes in this country. “It’s just tragic,” he said, adding people save up and retire and want to travel but instead end up losing everything to pay for long-term care for a loved one.

What government really needs to do, he said, is keep those costs down.

Carney said the state tax really isn’t going to help much. It only provides $36,000, which is a “drop in the bucket” compared to what long-term care costs.

The cost of a policy that would cover true long-term care costs would be “horrendous,” and you’d have to be in perfect health.

Bryce said he is selling universal life hybrid insurance for at least $50,000 with a long-term flexible care rider to satisfy the state requirements. It’s not just a death benefit because it increases in value over time. With the rider it can be used for care rather than only in death. Clients like it because it can be issued right away, and, unlike the state program, they can take it with them if they move out of state.

He said many insurance companies are doing it. “It’s the only option out there,” he said.

Bryce said it’s really a good option for young people as they can get low rates and the policy only increases in value as they age. But he said he’s worried about young people in general.

“It’s really not on their radar,” he said.

Carney said he’s not selling that product. “Here’s the rub. You continue to pay after you retire.”

If you decide on the state product, Carney recommends you reduce your income on your W-2 form as much as possible, maybe take a bonus instead, if you are self-employed or have your own company.

Legislature

State Rep. Drew Hansen said the reason the legislature passed the act was to help the elderly stay in their homes as long as possible. He said too many people have to spend their life savings on long-term care. “We want to bridge the gap so they can stay in their homes,” he said.

Hansen said since it’s a new program, the first in the nation, they know there will be issues. They will continue to work on them to make it better. “It will take some time,” he said.

He has heard about a number of problems – like not receiving benefits quickly enough and moving out of state. But he said this act is a step in the right direction.

“We all pay for this,” he said, adding taxpayers have been paying the bill; now each person can pay at least a part of their share.

It’s not like state lawmakers are ignoring the problems. The Benefit Eligibility Workgroup is exploring potential statute changes and will make recommendations to the legislature in 2022.

These are the four areas they figured would be problematic:

• People who live in another state but work for a Washington employer will pay premiums, but will not be eligible for benefits unless they move to (live in)

Washington when they have a long-term care need. This impacts approximately 100,000 people.

• People who pay premiums and vest but move out of state and do not live in Washington at the time they have an LTC need will not be eligible for benefits.

• People nearing retirement now will have difficulty vesting. Those who retire before 2025 will not be able to vest at all. Those who retire between 2025-32 will only have access to benefits if they need care within three years of retirement.

*Should a person working on an Employment Authorization Document/Visa/Green card be eligible for opting out?

————————-

LONG-TERM CARE ACT

The state Long-Term Care Tax should have the attention of every Washington state employer and employee. This new law mandates a tax of 58 cents on every $100 in wages to pay for long-term care benefits. That’s $5.80 for every $1,000 you make. The tax is only paid while you are working.

The tax/premium collections will start Jan. 1, 2022. Those who plan to retire in the next 10 years will have to pay premiums, but may never qualify for the benefit. And there is a very short period to opt-out.

Opt-out

You can opt-out by demonstrating that you have obtained qualifying private long-term-care insurance before Nov. 1.

The employee then may apply for an exemption. The Employment Security Department must accept applications for exemptions only from Oct. 1 through Dec. 31.

Once an employee opts out, the employee cannot opt back into the program. The opt-out is permanent.

If an exempt employee fails to provide the approval letter to their employer, the employer must collect and remit premiums beginning Jan. 1, 2022. An employee is not entitled to a refund of any premiums collected before the employee’s exemption took effect or before the employee provided the approval letter to their employer.

Who might want to opt-out?Higher-income employees who could purchase a more robust policy for less premium than the payroll tax.

Employees who are newer to the workforce and would thus pay into the fund for decades, ultimately paying more in tax than they would receive in benefit.

Employees who plan on retiring before the benefits are available.

Employees who plan on retiring outside the state of Washington or want the flexibility to do so.

Self-employed individuals who are considering returning to work for another company where they would be a W-2 employee, and therefore, subject to the tax.

What’s the state program?

It’s the first in the nation. Employers must collect this assessment through after-tax payroll contributions and remit those premiums to the ESD. Employers are not required to contribute.

There’s no cap

Wages and other compensation, including stock-based compensation, bonuses, paid time off and severance pay, are subject to the tax. For example, an employee with wages of $75,000 will pay $435 toward the program each year while an employee with wages of $300,000 will pay $1,740.

Which employees?

All employees in Washington must pay taxes into the program. Exceptions are self-employed, employees of federally recognized tribes and certain collectively bargained employees. Out-of-state employers must collect and remit premiums for any employees who primarily work in Washington.

Who is eligible?

Benefits are limited to Washington residents who have paid premiums under the program for either: A total of 10 years without interruption of five or more consecutive years; or three years within the last six years from the date the application for benefits is made. Also, to qualify, an employee must have worked at least 500 hours during each of the 10 years or each of three years, as applicable.

From a practical standpoint, this means that employees who plan to retire in the next 10 years have to pay premiums, but may never qualify for the benefits. And retirees who move out of state will not qualify for the benefits.

What are the benefits?

Benefits will become available Jan. 1, 2025. If the Department of Social and Health Services determines that an individual needs help with at least three Activities of Daily Living, the program pays up to $100 day, with a lifetime limit of $36,500. Private insurance pays after only two ADLs.

Activities of daily living

The new state insurance will pay only if the patient can’t do three of these things: Bathe, go to the bathroom, eat, dress, transfer (such as getting out of a chair or bed) and control their bladder or bowels.

Out of state

Because benefits are limited to Washington residents, employees who move out of state will not be eligible to receive benefits. Employees who maintain a second home will want to consider which location will be their permanent residence.

However, the state program does protest your assets in other states, as long as it’s a participant in the national “reciprocity” agreement. If moving to one of those states you receive dollar-for-dollar asset protection. Without the reciprocity agreement, the policy is portable, but the asset protection features are not, the state insurance commissioner’s office says. However, while that may be the goal, Washington is the first state to have this so there are no reciprocal agreements yet.

Self-employed

Even though they are exempt, self-employed individuals may choose to opt-in. Under the Program, self-employed must elect coverage by Jan. 1, 2025, or within three years of becoming self-employed for the first time.

Why needed?

With people living longer and medical advances better than ever, seven of 10 Washington residents over age 65 will need long-term services. Cost per year for such service is about $131,400. In the past, many people have had to spend their savings to qualify for support, creating a financial burden on families. Also, private insurance is costly and not covered by Medicare or other health insurance plans. And the program provides relief to Medicaid. Medicare spends $4 billion annually on it statewide. Other states and maybe even the federal government are looking at the same thing.

Things to consider

Life expectancy, gender, family situation, health status, income and assets, stability, cost.

How to pay

State program, private program, Medicaid, personal savings, accelerated death benefit, life settlement, reverse mortgages, continuing care retirement communities, veterans benefits, Medicare.

Top companies

Mutual of Omaha, New York Life, Lincoln Financial, Northwestern Mutual, Transamerica, Nationwide, Brighthouse Financial.

Other facts

It works similar to Social Security. The state program is easier to get into than private if there are health concerns. Decisions are permanent, at least at this point. Employers can pay the premium. Benefits can be in-home or at a care facility. About 50 percent of people need long-term care for a year or less.

Take a quiz

Which option is best for you: https://walongtermcareoptions.info/

More information

www.wacaresfund.wa.gov

www.insurance.wa.gov

www.longtermcare.gov

www.dshs.wa.gov/altsa

www.investopedia.com

www.money.com

www.aaltci.org

www.retirementliving.com

www.marketwatch.com

Courtesy Photo
Facilities on Bainbridge Island include Winslow, Wyatt, Medina and Madrona.

Courtesy Photo Facilities on Bainbridge Island include Winslow, Wyatt, Medina and Madrona.

John Carney

John Carney

Kyle Bryce

Kyle Bryce

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