Washington became the first state to set up a public Long-Term Care (LTC) Insurance program to help offset the costs for all its residents. Governor Jay Inslee, on May 13th, 2019, signed a law that will provide Washingtonians with a lifetime benefit of up to $36,500 to pay for the long-term care costs of individuals who need assistance and up until now, they needed to be paid for by LTC insurance, Medicaid and private funds.

The Reasons Behind the Need for a Public LTC Insurance Program

Long-term care is a service that will be essential for a large number of individuals over the age of 65. Unfortunately, the need for LTC can drain our financial resources to the point where many of us may not be able to afford it. 

According to the U.S. Government Accountability Office, the median retirement savings for individuals over the age of  65 is about $150,000. However, the lifetime cost of care averages over $250,000 and Medicare covers only limited long-term care. This creates a situation in which most individuals are not able to meet possible long-term care needs.

In 2016, a report on family caregiving published by the AARP estimated that over 850,000 Washingtonians find themselves in a position where they have to provide LTC assistance to family members. Helping family members in times of need is considered by many of us as a part of our familial duty but the report found that an average of 20% of our income may have to go to out-of-pocket costs related to caregiving. Additionally, due to our caregiving obligations, we may have less time to spend working which translates into less income, social security credits or other benefits.

Another reason for needing public LTC programs is the fact that only just over 8 million Americans are protected with private LTC Insurance (American Association for Long-Term Care Insurance). As a result, if our government did not create LTC programs, many families could possibly spend their life savings on LTC and face significant financial issues during retirement. What’s more, the Medicaid budget would have to be increased significantly to take care of individuals in need of LTC.  

Funding the Public LTC Insurance Program

The financing of the public LTC benefits will be provided through a payroll tax of 0.58% on employees with no wage limitation, and a wide range of services. However, the tax will start to be collected at the beginning of 2022. The benefits will not be available to eligible beneficiaries until the beginning of 2025.

Determining Who is Eligible

The public LTC insurance program is not universal since eligibility guidelines have been established. For example:

  1. It’s only available to Washington residents 18 years or older.
  2. To be eligible you must have paid payroll tax for 3 years within the past 6 years or paid payroll tax for a total of 10 years with at least 5 consecutive years.
  3. You have to work at least 500 hours in order for a year to count.
  4. For self-employed individuals participating in this program is optional.

It’s important to note that current retirees, children with disabilities, and adults with disabilities who work less than 10 hours a week are exempted from the work requirements listed above.

Who Benefits from the Public LTC Insurance Program

The beneficiaries will be the elderly and young people, as well, who experience injuries or illnesses which could lead to the need for LTC. Families that care for individuals who do not require institutionalized assistance are eligible to receive this assistance. Furthermore, the benefits can be used in part or as a whole to cover needs over months, years, or even decades.

Families will also be given the opportunity to decide how to spend the benefits they receive. They could be used, for example, to pay for in-home care, nursing home care, home modifications, meals on wheels, and even compensation for unpaid family caregivers.

Concluding Remarks

The main aim of the LTC Trust Act is to minimize the uninsured risk faced by a large number of Washington residents and to help protect the Medicaid budget. It’s not surprising that Washington state was the first to sign the public LTC Trust Act since the AARP rated our state as the best state in the U.S. to grow old. Washington state has this honor due to the outstanding home and community-based care system it offers Washingtonians. It’s a system that has been developed during the last two decades. 

Unfortunately, even though many other states have begun developing their LTC systems, there is no state reciprocity system to help individuals moving to another state. Currently, if we pay into one state’s LTC system and move to another state, our contributions are not eligible to be transferred. We hope that in the future contributions will be transferable and that the federal government will establish LTC solutions at the federal level.

For more information about the Public Long-Term Care Insurance Program and how it can affect your retirement plans, please use our online contact form or call us at (425) 282-5407. Our team of advisors will work with you to develop a customized financial plan specific to your personal goals and current needs!

Securities and financial planning offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Clarity Capital Management is not affiliated with LPL Financial and offers tax and accounting services separate and apart from LPL Financial.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. Contact your plan sponsor if you would like more details regarding applicable provisions of your specific retirement plan.