Trail Financial Planning, LLC is a fee-only financial planning and investment management firm located in Bellingham, WA

Washington State Long-Term Support Act is coming to your paycheck

Washington State Long-Term Support Act is coming to your paycheck

Starting on January 2, 2022, all Washington state residents who earn a paycheck will start paying 0.58% of their gross pay to support the newly formed Long-Term Services and Supports Trust, referred to in this blog as the “LTSS program.” (Reference [1]).  This blog post is a summary of the program (what it costs and what it provides), and my thoughts on a decision to participate or not.  

Who is affected?

Anyone who earns a paycheck in Washington state will be automatically enrolled in the program starting on January 2, 2022.  The 0.58% cost will be a payroll deduction, so your net pay will go down.  Those persons who do not receive a paycheck (retired, self-employed or unemployed) will not be auto-enrolled.  Self-employed persons can opt-in, but they won’t be auto-enrolled. 

What is the LTSS program?

The “LTSS program” will collect money from employed persons in Washington state and put the money into a trust (basically a big pool of money).  Starting in 2025, four years after people start paying into the trust, the trust can start paying out benefits to those eligible.  There are lots of details about eligibility, benefit amount, when payments can begin, etc.  For the purpose of a readable blogpost, I will list only a few of the most salient details, and give links if you want more details.  A few of the most relevant features:

  • The program will automatically enroll anyone who earns a paycheck.  The first payment will be deducted in January 2022.
  • The cost is 0.58% of your gross income with no cap on income.  So, someone with an annual income of $100,000 will have $580/year or $48/month deducted from their pay.  Someone who earns $1,000,000 in income will pay $5,800/year.
  • The benefit will be up to $100/day, with a lifetime cap of $36,500 (all amounts will rise with inflation)
  • To be eligible for benefits, you have to pay in for 10 years
  • To be eligible for benefits, you have to need assistance with 3 Activities of Daily Living (ADLs) such as dressing, eating, transferring, etc.
  • The program only applies to Washington residents, both for payments AND for benefits 

If you want more details, there are many informative articles out there.  Here are two:

  1. The Washington State Hospital Association has prepared a good summary of the program.  The piece is detailed, and does not seem to be too full of opinion or sales pitches for opt-out options.
  2.  The official Washington Cares Fund page.  Although the site is informative, I think it is fair to say that this website has a pro-LTSS marketing slant.  For a simplified one-pager of the program, click here.

Is long-term care something you (or the state) really needs to think about?

For those of us who are fortunate enough to be in good health, needing long-term care is a not-very-desirable thing to think about.  But, the alternative to aging (and eventually needing assistance)  is also not a pleasant thought.  If we do need assistance, there is little doubt of the expense.  Here are a few findings about the cost of care from a 2020 study by the Health and Human Services department (Reference [2]):

  • 56% of persons over the age of 65 will require some sort of paid long-term care service in their life.  The percentage is higher for women (60%) than men (51%).
  • The cause of needing long-term care can vary.  Dementia and memory care are the most common.
  • The average cost of care is about $140,000 over a person’s lifetime (for those who need it).  But, the cost really depends on length of need, and the length of need varies dramatically:
  • Proportion of those needing care by length of care needed:
    • 44% have no need
    • 10% need less than 1 year
    • 9% need 1-2 years
    • 15% need 2-5 years of care
    • 22% need 5+ years of care
  • The annual cost of care depends on the level of service needed.  The monthly costs for a facility are on the order of $5,000 – $10,000/month in today’s dollars.   That multiplies out to between $60,000 – $120,000 per year.

Thus, long-term care is both likely, and the costs are widely variable (from nothing to many hundreds of thousands of dollars).

Is the LTSS program a good program to address the long-term care cost risk?

The one-pager that I referenced above claims that the LTSS program is an “insurance program like Social Security.”  I think that is a stretch, and in my mind, is the crux of the problem with Washington’s LTSS program.  

A good insurance plan should protect against catastrophic risk.  In my mind, that number is in the $500,000 – $1,000,000 range in today’s dollars.  The LTSS program caps lifetime benefits at $36,500.  Imagine if your 26-year old nephew was thinking about health insurance for the first time.  He comes to you for advice.  He led the conversation with, “I am healthy and never need to go to the doctor, so why should I pay for health insurance?”  He tells you that he has found a health insurance plan for $48/month, with a maximum lifetime benefit of $36,500.  He proudly states what a good deal he has found, and how he escaped the evil system of high health insurance premiums.  I think we all know what sort of advice this young man would need.  The advice might be summarized as “Someone needs to knock some sense into that kid.”   

I think a similar argument could be made about the LTSS program.  The LTSS program does not actually protect against the risk.  At best, it is a savings program to offset some of the future costs.  Then, when you combine the future benefit with the difficult hurdle to qualify and lack of portability, I find few things in the program to like.  The most positive spin on the program to think of the LTSS program as a social-services program to help lower-wealth households, and will help un-burden some future costs to the state (since Washington state also bears some of the cost of Medicaid).  The state’s literature suggests that such benefits are important and warrant the enacting of the LTSS program.  

What are your options?

In order to opt out, you have to have a long-term care insurance plan in place, and paid for, by Nov. 1, 2021.  Many employers are sending out emails to their employees with options to sign up for long-term care policies and opt-out of the state program.  If you don’t have access to an employer-sponsored plan, and you want to know opt-out options, you need to look into private long-term care insurance.  The problem, as I have recently found out, is that the options to get a private long-term care policy are evaporating fast.  I talked to a local insurance agent who is trying to keep up with 20x the normal application volume.  Many of those applications are from people who want anything to avoid the LTSS program, but who don’t necessarily want good long-term care insurance.  Well, just like any business, good insurance companies don’t like to write bad insurance policies.  Many insurers are pulling out of the Washington market, or saying that they cannot ensure that an applied-for policy could be in place by November 1.  

If you want to talk to an insurance person about your options, here are three options:

  1. Ask your Employer (or the Human Resources department) about your options. 
  2. If your employer isn’t giving you options, call your local insurance agent and ask them who they would recommend for long-term care insurance.
  3. Call a reputable insurance agency.  That is what I did.  I called Caldwell Insurance Services LLC in Bellingham, WA.  The owner, Renee Caldwell, spent some time with me talking about long-term care and long-term care insurance.   She gave me a portal where I could enter my information, and schedule a consultation with a licensed insurance person.  Furthermore, she suggested that if any of my clients (or blog readers) wanted more information, they could go to the same website and schedule a similar consultation.   Here is the URL:   https://www.buddyins.com/program/renee/.  The website also offers lots of information about the LTSS program and a 20-minute video discussion.  I don’t have any affiliation with Caldwell Insurance, nor with Buddy Insurance.  If you click on the URL above, I do not receive any sort of compensation, although Caldwell Insurance might (I actually don’t know).  If you do put your info into step 3 on the website, you will be contacted by a licensed agent from somewhere in the country.  This is what I did, and my experience is reported below.

(Update from 9/17/2021) Renee informed me that her agency is not able to process any more applications for Long-Term Care in 2021.  I have heard that there are still a few insurance agents serving Washington state, but the number is dwindling.  You may just need to hit the Google if you are still looking for options.  In the original post, I included a portal where you could get more information.  Unfortunately, that is no longer viable. 

My experience

I followed step 3 for my wife and me.  I entered our information, which took about 5 minutes.  I scheduled a meeting for 2 days later.  I spoke to an insurance person from Massachusetts.  I knew I would be speaking to someone from outside of Washington state because the demand for private policies is just too great for only Washington agents to handle.  Of course, it was a sales call, but the agent shared lots of good information and personal experiences.  She was nice, and not too pushy.  She covered the risk and the financial benefits of long-term care insurance to protect against the risk.  More convincingly though, she talked to me about the emotions surrounding a long-term care event, and how having dedicated funds can be useful to navigate that emotional transition, and to make good care decisions.  That conversation prompted many thoughts for me that I will save those for a future blog post.  To get a policy that at least matched the state’s daily benefit of $100/day, with a much higher lifetime benefit (6x the $36,500 LTSS lifetime cap), the cost would be around $2,500/year for both my wife and me (we are both in our late 40s).   That cost was not an easy pill to swallow, I was interested.  But then, she shared with me one detail.  

She asked if I was in physical therapy for anything.  I am, as I had knee surgery in the Spring of 2021.  Turns out that the insurance company she was talking about would disqualify me from applying until I was out of therapy or rehabilitation services.  So, my wife and I are ineligible until I am done with my rehab (at least we are ineligible for the insurance company this woman told me about).

Fortunately, we are self-employed, so we won’t be automatically opted in.  However, I am planning to set up a payroll system in the future.  So, when we set up the payroll, we will become a part of the LTSS program.  I will grit my teeth and pay, and hope that my dollars benefit an elderly couple who otherwise might not be able to pay for help.  As it is said, “there are only two things certain in life – death and taxes.”  Washington state is pushing us to think about both.  Sigh.  

–References–

[1] – In 2019, Washington state passed House Bill 1087, which creates the Long-Term Services and Supports Trust (AKA “LTSS Program”).   In 2021 the program was modified by House bill 1323.  The LTSS program is a pot of money that will be available to eligible.

[2] – “Long-Term Services and Supports for Older Americans:  Risks and Financing, 2020 Research Brief.”  https://aspe.hhs.gov/reports/long-term-services-supports-older-americans-risks-financing-2020-research-brief-0

John Chesbrough

I am a financial planner and investment manager. I also am the owner of a fee-only, independent financial advisory firm called Trail Financial Planning. I enjoy working with people who care for others and their community – parents, firefighters, therapists, doctors, nurses, and teachers. I may be spotted at through my blog or on the many winding trails of Whatcom County. To learn more, or contact me directly, please visit my firm's website: www.trailfp.com.