In 2019, the state of Washington passed a law to provide public long-term care benefits for residents of the state who meet certain criteria. The law is intended to reduce the stress on the state's Medicaid system while also offering more robust long-term care benefits than the current Medicare system allows.
While useful for people of moderate income and those who are in poorer health, this program may not make sense for everyone. So, can you opt out of the Washington Long-Term Care Trust Act?
It is possible — however, you will need to consider whether this decision makes the most sense for you and your family. Below are some things for you to consider when deciding whether it makes more sense to stay in or opt out of this program.
What Is the Washington State Long-Term Care Trust Act?
With the passing of this law, Washington created a program to provide a public-operated, long-term care benefits program. The program aims to help with in-home or assisted living expenses associated with being unable to take care of yourself without help.
If you qualify for benefits in the program, you can receive lifetime long-term care benefits of up to $36,500. This is possible because, starting on January 1, 2022, employees who do not opt out of the program will begin paying a 0.58% payroll tax on all eligible compensation. The money collected will go into the WA Cares Fund. If you remain in the program, your contributions will flow into this fund. Employers will not pay into the WA Cares Fund.
Unlike Social Security, the law does not place a cap on the amount of income to be taxed. As a result, higher-income individuals could potentially pay more into the fund than they would expect to receive in return. For example, an individual with 25 years left in the workforce earning $250,000 a year in total compensation could expect to pay $36,250, nearly equivalent to the total lifetime benefit currently available under the program's rules.
For additional details on this new legislation, check out our comprehensive guide.
Can You Opt Out of the Washington Long-Term Care Trust Act?
If this program doesn't seem to make sense for your needs, lawmakers have provided a way to opt out of the program — but you should pursue opting out with caution, as any exemption from the state program is permanent. To opt out, you will need to purchase your own long-term care insurance policy as well as file a waiver application with the state between October 1, 2021, and December 31, 2022, for an exemption from the program.
You will need to attest that you have purchased a private long-term care insurance policy before November 1, 2021. Once the waiver application for exemption is approved by the state, this will permanently remove you from program eligibility — once you opt out, you cannot return.
Further, you'll need to provide copies of the waiver certification to current and future employers so that they know not to withhold this amount from your paychecks. Any amount of taxes withheld prior to the state granting your exemption and your providing notice to your employer is not refundable.
Who Should Consider Opting Out?
Opting out of this program is a personal choice. Only you can make the decision, but a financial advisor or licensed insurance agent can provide educational information to help you understand the program, and can assist you in determining whether a private long-term care insurance policy can help meet your needs and goals.
Because long-term care represents one of the biggest financial costs people face during their lives, consider the trade-offs you make by opting out of the program. Another option you may consider is deciding to purchase private long-term care insurance and not opting out of the program, thus using the private coverage to supplement the state program's benefits.
People who may be more likely to opt out of the program include:
- High-income earners who are able to purchase their own long-term care insurance policy, paying less in premiums than in taxes, and potentially with greater benefits.
- Newer workforce entrants with several decades of expected work ahead of them, potentially leading to greater payments than benefits.
- Employees intending to retire prior to benefits commencing in 2025.
- Employees intending to pursue retirement in other states.
On the other hand, Medicare covers only limited long-term care for skilled nursing care or rehabilitation. For low-income seniors, this program can provide the security of knowing they will receive some care without the added stress of worrying about how to pay for it.
Need Additional Help?
For more information, consider contacting a licensed insurance agent. An experienced and knowledgeable financial professional in the long-term care industry can provide you with the information you need to navigate this new law and get the most out of your retirement planning moving forward.
Bankers Life is not connected with the WA Cares Fund and is not endorsed by the State of Washington. See http://www.wacaresfund.wa.gov/ for information about the WA Cares Fund program.
Exemptions are for life, which means you would never have access to the WA Cares Fund benefit. Consult with a tax advisor or attorney before applying for any exemption or taking any action in connection with the WA Cares Fund. Bankers Life and its producers do not provide legal or tax advice.
Bankers Life is the marketing brand of Bankers Life and Casualty Company, Medicare Supplement insurance policies sold by Colonial Penn Life Insurance Company and select policies sold in New York by Bankers Conseco Life Insurance Company (BCLIC). BCLIC is authorized to sell insurance in New York.