California Residents Pondering Potential State Long-Term Care Tax Program

The State of California continues to review several options for a statewide long-term care program funded by a payroll tax. Following the lead of the State of Washington, which instituted its "Washington Cares" payroll tax and program in July 2023, California, like several other states, is reviewing options.

The plan is getting the attention of employers and employees. For example, a letter sent to Costco Wholesale Corporation to California employees brings attention to the implications of the program if it is signed into law.  

Although this legislation has not yet passed, we felt it was important to notify you because of the implications if it is signed into law. Specifically, if passed, a new statewide long-term care program would be funded through a tax that will be deducted from employees' paychecks each pay period.

Other employers are educating employees and helping them find ways to plan for long-term care if they wish to avoid a future state program and tax.

Task Force Reviewing Several Options

The California Long-Term Care Task Force (LTC Task Force) has proposed several options. Specific details of the proposed options are still under debate and development, but they generally share the following features:

• A payroll tax: All California employees would be subject to a payroll tax to fund the long-term care program. The exact tax rate would vary depending on the age and income of the employee.
• A mandatory enrollment option: Some options would require all California employees to enroll in the program, while others would allow employees to opt out if they own a qualified Long-Term Care Insurance policy.
• A benefit structure: The specific benefits of the program would vary depending on the option, but they would generally cover a range of long-term care services, such as nursing home care, assisted living care, and home health care.

The task force has considered a private insurance opt-out, similar to Washington's. Washington gave residents a short period to obtain qualified private coverage to opt out of the tax and the Washington Cares Program. The Washington State Employment Security Department reported that nearly 500,000 people filed paperwork to opt out of the tax.

“Washington Cares” Has Been Controversial 

The Washington Cares Fund is a state-funded long-term care benefit program that provides eligible Washingtonians with a lifetime benefit of up to $36,500 to help pay for long-term care services. The program is funded by a payroll tax deducted from all Washington workers' paychecks.

Considering that Washington is one of the country's most expensive states for long-term health care, according to the LTC NEWS Cost of Care Calculator, the state plan is, according to opponents, hardly a plan for long-term care, and critics have called it a cash grab. 

The State of Washington introduced the LTC Tax as a pioneering measure in the country to address long-term care. This tax imposes an unlimited 0.58 percent payroll tax on employees, translating to $580 per $100,000 of income. It is designed to fund a basic benefit aimed at covering future long-term care expenses.

The program has created substantial debate in the state. Opponents have indicated the amount of available benefits will pay for very little care in a state where the cost of care is one of the highest in the United States.

Attempt to Repeal

House Republicans in the State of Washington are seeking to repeal the Washington Cares Fund long-term care tax for several reasons, including:

• The tax is unfair and unpopular, with nearly 63% of voters opposing it in a 2019 advisory vote.
• The tax is inadequate and will not provide enough coverage to meet the needs of most Washingtonians.
• The tax is insolvent and will eventually require higher taxes or lower benefits.
• The tax is unpopular and has already led to many Washingtonians purchasing private Long-Term Care Insurance to avoid the state-run program.

The House Republicans say that the Washington Cares Fund is a flawed program that will not provide the financial security that Washingtonians need. They argue that the program should be repealed and that Washingtonians should be allowed to choose their own long-term care coverage.

Elizabeth Hovde, the policy analyst and Director of the Centers for Health Care and Worker Rights, believes the state should make "Washington Cares" optional.

When lawmakers imposed Washington Cares on workers, along party lines, lawmakers did not let workers ask if they "need" Long-Term-Care Insurance. Some will use it, some won't. Workers' ages, health, retirement goals, income, or assets also didn't matter. All workers were forced into Washington Cares, even people with no money to spare.

Opposition in California

There is opposition to the California program, some of which is based on what has happened in Washington. The opposition to the potential California long-term care program options  suggest the tax would be unfair, unnecessary, and too expensive. They argue that the tax will disproportionately burden low- and middle-income Californians and that funding a statewide long-term care program is unnecessary. Additionally, they argue that the cost of the tax will be higher than the benefits it provides.

Others say the state should update the California Long-Term Care Insurance Partnership program and encourage those with savings to purchase private insurance to provide care and protect assets.

Insurance Agents Warned

The California Department of Insurance is urging those who sell Long-Term Care Insurance to stop exploiting the state's initiative to establish a public long-term care benefits program as a tactic to hastily sell private Long-Term Care insurance. In a recent alert to insurance agents and brokers, California Insurance Commissioner Ricardo Lara highlighted misleading marketing practices by some insurers and agents. 

These communications falsely assert that a new payroll tax will be imposed in the near future, and that consumers should rush to buy long-term care insurance before the end of 2023.

While not specifying the source of these communications, Lara emphasized the state's commitment to safeguarding consumers from deceptive, fear-driven marketing strategies.

Yet, many observers say that if California enacts a long-term care program, they will probably provide a very limited time for those with a qualified Long-Term Care Insurance policy to prove coverage and avoid the tax.

Potential Options Being Reviewed

A comprehensive 115-page report from consultant Oliver Wyman presented five potential programs for California. The recommendations include:  

• "Supportive benefits" offering $36,000 over two years, encompassing services like caregiver support, adult day care, meal delivery, transportation, durable medical equipment, and minor home modifications.
• "Targeted benefits" that provide $110,400 over two years, which covers the same services as the first option, plus home care and residential care facility benefits.
• Comprehensive benefits of $36,000 over a single year, offering the same coverage as the second option. This recommendation is said to be "inspired by the WA Cares Fund design with select updates."
• Comprehensive benefits of $81,000 over 18 months, including services covered in option three, with additional care in a skilled nursing facility.
• Comprehensive benefits amounting to $144,000 over two years, covering the same services as in the fourth option.

Private Long-Term Care Insurance usually offers much more substantial benefits that are custom-designed by the policyholder. Premiums are based on age, health, and other factors, so those with poor health usually cannot find coverage. 

Offering Californians Access to Quality Long-Term Care

Supporters of the California long-term care tax argue that the tax is necessary to ensure that all Californians have access to affordable long-term care. They believe the current system, which relies on private Long-Term Care Insurance, is inadequate and leaves many Californians without coverage. They also argue that the tax is fair and affordable and will help offset the rising cost of long-term care.

They also suggest that the tax will have a positive impact on the economy. They argue that the tax will create jobs in the long-term care industry and that it will help keep people out of nursing homes and other expensive long-term care facilities.

California Governor Gavin Newsom said the task force will help the state address the growing need for long-term care.

I am confident that this Task Force will develop a comprehensive and affordable plan for long-term care in California.

The problem of funding long-term care is not going away any time soon. With a nation that is aging and longevity increasing the need for long-term care, a plan to address the cost and burdens of aging will remain important. Many planning experts say that obtaining Long-Term Care Insurance just to avoid a tax is not a reason to get a policy. Understanding what insurance can provide and how it benefits a family should remain the primary reason to get coverage or support a state tax program.