Facing a lawsuit and political opposition, Washington State Governor Jay Inslee has delayed until April a payroll tax aimed at funding the state’s first-in-the-nation public long-term care insurance program. Inslee said the delay will give the legislature time to address what he called “areas that need adjustment.”
A state long-term care commission advising the legislature and governor will recommend a series of changes in January aimed at responding to some of these public concerns. Those revisions themselves are likely to be highly controversial.
Employers were supposed to begin collecting a 0.58 percent payroll tax to fund the insurance program starting on January 1. The tax is mandatory for most wage earners. The program is scheduled to begin paying each eligible participant up to $36,500 in benefits starting in 2025.
Responding to critics
Conservative activists have made opposition to the program a major priority, filing a lawsuit and organizing an effort to repeal the program. The private insurance industry has quietly opposed it as well, fearing the state’s front-end benefit will compete with its products. In September, a long list of businesses and business groups urged Inslee to delay the tax until key issues can be resolved.
In response, Inslee and Democratic legislative leaders are moving to reform the program before the state begins collecting the tax.
They are likely to address some issues involving workers who pay into the program but are ineligible to collect benefits. About 150,000 people work in Washington but live in Canada as well as Oregon, Idaho, and other states. Others may pay into the program as Washington residents but eventually move elsewhere. In both cases, they must pay the tax but could not receive benefits because only Washington State residents are eligible. In addition, some older adults may not pay into the program for long enough to become vested and thus would be ineligible to receive benefits.
The vesting rules are complex. They require beneficiaries to pay into the program for at least ten years without a break of five or more years, or three of the last six years before they apply for benefits.
The private insurance exemption
The state ran into other issues earlier this year as the result of a controversial provision that allowed workers to opt out of the program if they purchased private long-term care coverage by November 1. That opt-out drove a run on private insurance that eventually resulted in carriers temporarily ending sales in the state.
Because the law requires only a one-time snapshot, the insurers feared customers would pay premiums long enough to receive an exemption and then drop their coverage.
A median wage worker in Washington would pay about $300-a-year in premiums but far more than that in premiums. Still, almost 300,000 people applied for an exemption under the provision and the state is working through the requests.
Finally, the tax rate is too low for the program to be actuarily sound over the long term.
The advisory commission recommended changes to address most, but not all, of these concerns. Two big issues: Most of the solutions would be administratively complex and without other revisions they will result in higher premiums.
The commission proposed:
- Allowing workers who retire before vesting to voluntarily continue paying premiums equal to what they paid while working, adjusted for inflation. Once they make a total of 10 years of contributions, they’d become fully vested.
- Exempting non-residents who work in Washington from the program and the tax. Those who move into the state would participate in the program.
- Those who receive an exemption from the tax because they hold a private long-term care insurance policy would be required to recertify at least every three years that they still own a policy.
The commission did not recommend what to do about those who live, work, and pay premiums in the state but move elsewhere before claiming benefits. Allowing such full portability could significantly raise premiums and the commission said addressing the problem would take further study.
Paying for changes
To cover the costs of these reforms and assure the program is actuarily sound, the commission proposed several other changes. Lawmakers oppose raising the premium tax, so the commission suggested allowing the state insurance fund to invest in “a full range” of assets rather than just conservative bonds. This would require a state constitutional amendment.
The group also said outside actuaries who price the program should assume it includes a 45-day waiting (or elimination) period before people can claim benefits. This is similar to the 90- day waiting period in most private policies.
As the first state to enact a public long-term care insurance program, Washington is experimenting–and inevitably making mistakes. It also has become a lightning rod for the those who oppose a public program for ideological or business reasons.
Policymakers—and consumers– around the country are watching closely to see if the state can get a politically and financially sustainable long-term care insurance program up and running. The next few months will be critical.