Washington State recently passed legislation to create the nation’s first state-run long term care fund. The Long Term Care Act goes into effect January 1, 2022. Here is what it means for you as an employer, as a potential beneficiary, and employee options for opting out by getting other coverage.
The law requires all employees to pay 58 cents on every $100 of gross wages paid into the fund. For example, an employee making $100,000 annually will pay $580.00 in tax. There is no employer match required, but the employer will be required to collect and remit the tax to Employment Security, similar to how Paid Family Medical Leave (PFML) is reported.
Here is what’s wrong with the state LTC plan and why employees might want to buy private LTC insurance instead:
It is expensive for higher earners.
There is no cap on the gross earnings subject to the tax, and no tax brackets. This means that someone making $250,000 per year will pay five times as much as someone making $50,000 per year, even though the benefits will be the same for everyone.
Benefits are very limited and might be hard to use.
The insurance will pay for $100 per day up to $36,500 lifetime maximum. “This is a drop in the bucket,” says LeeAnn Brown of The Brown Agency, a Vashon Island insurance broker.
Beneficiaries will have to live in Washington State to collect benefits. If you are planning on retiring out of state you will not be able to use the benefits.
In order to receive benefits, eligible individuals will have to get a determination from the Department of Social and Health Services that they need the care. Unless there is a plan to staff up DSHS and streamline the review process, this sounds like a bureaucratic bottleneck in the works. On the plus side, a broad range of services will be covered, including things like in-home meals, home renovations, and assisted living services.
To be eligible for services, an employee must have worked either three of the last six years, or a total of ten years, with five of those years being consecutive. The employee must have worked at least 500 hours in each of those years.
What you need to do as an employer.
Nothing! The law only requires you to start collecting and remitting the tax effective January 1, 2022. Of course, you might want to give employees a heads up about this new deduction they will see on their paycheck.
You could go a step further and refer your employees to a source for purchasing private LTC insurance. IMPORTANT! Any private plan will have to be in effect by November 1, 2021 if the employee wants to opt out of the state plan.
Another option for some employers might be to offer a group plan as an employee benefit. There is absolutely no requirement for an employer to do this, but in today’s job market, it might be a good enticement to hire and retain good employees. Unfortunately, in order to qualify for a group plan your company has to meet very specific criteria that may be hard to meet.
The mechanics of how to opt out are still being worked out. Employment Security will require some sort of proof of insurance, and then they will issue an exemption for any employee who does not have to participate in the State plan. We will fill you in as we learn more.
For now, the key is to let your employees know this is coming, and let them know that they have the option of buying private insurance instead. And to do do this by November 1, 2021.