The WA Cares Fund
Effective January 1, 2022, Washingtonians who are W-2 employees will be subject to a 0.58% payroll tax on all payroll (W2) compensation. If you are employed, you will pay $580 of additional tax per every $100,000 of compensation with no income cap.
What benefits does this program provide?
Qualifying individuals can receive up to $100 per day towards cover long-term care costs, with a maximum lifetime benefit of $36,500. This equates to one year’s worth of coverage for long-term care expenses at $100 per day.
Other considerations:
Benefits are not available for care outside of Washington State.
Benefits only cover LTC expenses for the employee who is contributing through payroll (not their spouse or dependents).
How can I opt-out & be exempt from this new payroll tax?
You can opt-out permanently if you have your own long-term care insurance policy in place before November 1, 2021 that provides equal or better benefits. You must apply for an exemption through the Washington State’s Employment Security Department. Applications can be submitted between October 1, 2021, and December 31, 2022. Exemptions are for life.
Requirement for benefits:
Age 18+ & current resident of Washington AND
2. Unable to perform Activities of Daily Living (ADLs):
Assistance is needed with at least three activities of daily living, such as: medication management, personal hygiene, eating, dressing, and cognitive functioning, etc.; AND
Contribution Requirement Met:
Work and commuted for a total of 10 years without an interruption of 5 or more consecutive years AND worked at least 500 hours during each of the 10 years; or
Work and contributed for 3 years within the last 6 years from the date you apply for benefits AND worked at least 500 hours during each of the 3 years.
Individuals who move out of state or who do not meet the minimum contribution requirement will not be eligible for benefits, even if they contribute to the Program. In addition, employees who apply for and receive an exemption from the Program are not eligible for benefits (exemptions are discussed below).
What are the differences in benefits if I get my own LTC insurance policy?
The benefits provided by an individual policy can be substantially greater and more comprehensive than those offered by the state’s program. One common difference is that individual LTC insurance policies provide coverage for two or more years. You can also purchase a shared policy with your spouse where you get a joint benefit and receive discounts on the premium.
Should I get my own LTC insurance policy?
We might recommend exploring alternatives for any of the following reasons:
High-income earners: This means anyone who earns $300,000 or more in annual employee compensation. Most will be able to find a much better LTC insurance alternative for far less than $1,160/ year ($200,000 * 0.58% payroll tax). This is especially the case for households with two high incomes (i.e., $400,000 or more in joint employee compensation) that can purchase a shared policy to receive discounts on insurance premiums.
Plan to move outside of Washington State in retirement: You can only collect these benefits if you receive care in Washington State. Those who plan to move away will not receive any benefits and would receive far greater value by buying their own policy that can be used for LTC expenses wherever they choose to live in retirement.
Plan to retire within the next 10 years: To be eligible, you must have paid into the system either (1) for 3 years within the past 6 years, or (2) for a total of 10 years, with at least 5 of those years paid without interruption. As such, you will not receive any benefits if you do not meet these requirements before leaving employment.
Under 40, Mobile, Professional: Young, professional employees may want to purchase an individual policy if they intend to later move out of state, or if their earnings are expected to increase substantially in future years.
What would an individual LTC insurance policy cost?
Premiums for LTC policies depend on the benefits selected, your age, and your health. Premiums are typically paid annually, and you can cancel the policy at any time. There is a risk that premiums will increase over time for traditional LTC policies, as LTC companies often do not guarantee level premiums. Note that individuals younger than 30 years old are typically not eligible to purchase traditional long-term care policies, and most companies do not issue policies to those over age 75.
Is the program valid under federal law?
The question still remains whether the Program is preempted by The Employee Retirement Income Security Act (ERISA), a federal law that sets rules and standards for plans established or maintained by employers for the purpose of providing medical, surgical, or hospital benefits in the event of sickness, accident, disability, death, or unemployment. Under the doctrine of preemption, when a state law interferes or conflicts with a federal law, the federal law displaces the state law.
Some have argued that the Program conflicts with ERISA because it applies to the same type of plans that the ERISA governs (e.g., employer-maintained long-term care insurance that provides reimbursements for medical benefits in the event of sickness or disability). The Program is “employer-maintained” because employers are required to take payroll deductions and track exemptions. Further, the Program does not fall under an ERISA-exempted voluntary “payroll practice” because it requires participation by most employees.
Since the Program is arguably preempted by ERISA, parties may bring suit in federal court seeking to invalidate the Program. Employers should be aware that a legal question remains and should look out for lawsuits that may invalidate or delay the implementation of the Program.