Understanding Washington Cares Act
In 2019, Washington State passed and the Governor signed into law the Washington State’s Long-Term Services and Supports Trust Act (“LTSS”) which would implement a 0.58% payroll tax to fund long-term care services for Washington State residents. After making its way through objections and being upheld by the courts, this payroll tax went into effect this past July.
Here’s a quick breakdown:
Who is affected?
Most employees, including those who are self-employed, saw a 0.58% tax on their wages starting July 1, 2023. This means for someone earning $50,000, an added annual tax of $290 (or about $12 every two weeks) and for those earning $200,000, an added annual tax of $1,160 (or about $48 every two weeks).
What benefits does it provide?
The primary aim of this tax is to create a trust fund to provide financial assistance to individuals who need long-term care services, such as nursing home care or in-home care. Benefits are capped at an annual lifetime amount of $36,500. While many private Long-Term Care insurance policies have a daily benefit cap, the State policy will not.
What are the pros?
According to the State, 70% of Washingtonians will eventually need long-term care services and supports – most of which is not covered by Medicare but which could be covered by Medicaid…after you’ve spent your life savings down to $2,000. Advocates see this as a way to provide some breathing room and insulate against the high costs associated with long term care planning.
What are the cons?
The most common objections are twofold:
Portability: As the law is currently designed, it is only designed to pay for Washington State residents. That means you could contribute to it for your working lifetime, retire and move to Oregon, and lose all eligibility and with no recourse to the taxes you’ve already paid.
Benefits: Benefits capped at a lifetime amount of $36,500 will currently cover only 6 months of the average cost of assisted living. The cost of advanced care, the most desperate time when these funds will be needed, is incredibly expensive and this fact, compounded with the average stay in a nursing facility being somewhere between 2-3 years, still leaves a significant shortfall for Washingtonians.
Ultimately, the Washington Cares Act is the first State-sponsored fund to cover the ever-increasing cost of long-term care, with 19 other states are exploring or designing legislation of their own. Health care costs in retirement are frequently underestimated by retirees and by the time the gap between the underestimate and reality of the costs are realized, strategic opportunities are limited. For that reason, we encourage you to consult with your financial advisor to ensure the risks of long-term care on your overall financial plan are identified and understood – and if you have any questions, give us a call at 206-973-4488.
Komenda, E. (2023, June 27). Washington’s long-term care payroll tax starts July 1, as other states explore similar programs. AP News. https://apnews.com/article/washington-long-term-care-tax-disability-cb54b04b025223dbdba7199db1d254e4
Nelson, L. (2023, September 6). Mandatory long-term care coverage spreading to more states following Washington State LTC Program & Similar California LTC legislation. Washington reporting on LTC begins Oct 1st!. Leavitt Group News & Publications. https://news.leavitt.com/employee-benefits-compliance/mandatory-long-term-care-coverage-spreading-to-more-states-following-washington-state-ltc-program-similar-california-ltc-legislation-washington-reporting-on-ltc-begins-oct-1st/
Richard G. Frank, F. S. M., & Fiedler, M. (2022, June 22). The future of WA cares: A response to warshawsky. Brookings. https://www.brookings.edu/articles/the-future-of-wa-cares-a-response-to-warshawsky/
Slome, J. (n.d.). What Is The Probability You’ll Need Long-Term Care? Long Term Care Insurance - what are the chances you’ll need long term care - compare LTC insurance costs - LTC insurance companies. https://www.aaltci.org/long-term-care-insurance/learning-center/probability-long-term-care.php
Washington Cares Fund. WA Cares Fund. (2023, August 24). https://wacaresfund.wa.gov/