Why some plan to opt out of new WA long-term care insurance

Thousands are turning to private insurers for care plans in order to avoid paying a new tax.

A red State Farm sandwich board with a chalk message, "Have any questions about Washington's Long Term Care Tax? STOP IN"

A sandwich board sits outside an insurance broker's office in Seattle's Fremont neighborhood on Aug. 26, 2021, inviting passersby to come in and ask questions about Washington's long-term care tax. Many people have sought to buy private insurance to cover their future nursing care needs, hoping to opt out of a new state program that is paid for through a 0.58% payroll tax. (Melissa Santos/Crosscut)

Tens of thousands of Washingtonians are trying to opt out of a new state payroll tax — and, in doing so, removing themselves from a state insurance program designed to take care of them in old age.

Washington workers have until Nov. 1 to opt out of the state’s long-term care program, which will help pay for nursing care and other support services for people who can no longer care for themselves. Opting out means not having to pay a 0.58% payroll tax, which is set to begin in January.

The Legislature approved the program in 2019, anticipating a crisis in which many aging Washingtonians won’t be able to afford nursing care or other support services they’ll eventually need. Starting in 2025, the program will allow Washingtonians to claim up to $36,500 to help pay for services such as a stay in a nursing home, visits from an in-home caregiver or even home renovations like wheelchair ramps.

But the program provides a one-time opportunity for people to opt out, if they can show they have a similar private long-term care insurance plan in place before Nov. 1. 

That opt-out deadline has spurred a flood of applications for new plans, overwhelming the system and causing most insurance companies — if not all — to stop accepting new applications, said Steve Valandra, a spokesperson for the state Office of the Insurance Commissioner.

“They can’t meet the demand right now,” Valandra said of insurance companies. He said some carriers also are worried that people are buying plans now only to drop them later after the deadline passes for opting out of the state program. 

Several insurance companies did not respond to inquiries  from Crosscut asking for more information.

While the Insurance Commissioner’s Office doesn’t have solid numbers on how many people have applied for private long-term care insurance in recent weeks, Valandra said a single company reported that it received 66,000 applications in the past two months — a huge increase from the 8,000 the same company received all of last year. Before the recent surge in applications, only about 153,000 people statewide had long-term care insurance plans in place, Valandra said. 

Legislators from both parties are concerned. A top Democratic budget writer said it might make sense for the Legislature to hold an emergency session later this year to address concerns people have raised about the state  program — and possibly pause the program’s implementation. 

Cost vs. benefit

Some state officials are worried that insurance brokers are urging people to buy private insurance plans that may not be a good value for them in the long run.

The Insurance Commissioner’s Office noted on its website that private long-term care insurance plans have seen rate increases of 29% to 79% over the past five years. Many long-term care plans also require people to keep paying well into retirement, or else lose access to the benefits when they need them. With the state plan, by contrast, people pay only as long as they work.

Ben Veghte, director of the state’s long-term care program, which is formally known as WA Cares, said private plans end up being “very expensive.” 

“Most people can’t afford to pay those premiums on a fixed income in retirement,” Veghte said.

At the same time, many private long-term care insurance plans offer a larger benefit than the $36,500 that people can get through the state program.

For Cindy Heidelberg, an attorney from West Seattle, the state program’s relatively small benefit amount was what made her apply for a private plan. Given her income, the 0.58% payroll tax ended up being quite significant for what she got in return, she said.

“I think it’s a good public program to have, but I don't think it’s a good value for everyone necessarily,” Heidelberg said. 

“I can see this making a lot of sense for workers at the lower end of the income spectrum,” she added. “It doesn’t pencil out the same way for people on the higher end.” 

The state payroll tax of 0.58% equates to $580 per year for someone who makes $100,000 annually, or $290 per year for someone with an annual salary of $50,000. The tax is paid entirely by workers and not employers.

Veghte said the $36,500 state benefit is enough to pay for about a year of a nurse or aide coming to someone’s home. It won’t last as long for those who need more intensive care at a nursing home or long-term care facility. Veghte said about half of people need less than two years of care during their lives. He expects that private companies will offer supplemental insurance for those who want additional coverage.

“For most people, $36,500 will be enough for them, but those who want to be able to buy more will be able to buy more,” Veghte said.

Other Washington workers sought to opt out because they didn’t think they would benefit from the program, either because they are close to retirement or because they aren’t sure they will remain in Washington state long enough to claim the benefit.

The state program requires most people to pay in for 10 years to be eligible. And, as of right now, the program benefits can’t be claimed by workers who leave the state for retirement.

“My kids live in Texas, and I don’t know where I will retire,” said Aymad El-Khashab, a hardware engineer at Microsoft who lives in Seattle’s Wallingford neighborhood. 

With that in mind, El-Khashab bought a private long-term care insurance plan a few months ago that provides benefits similar to the state plan.

Changes might be on the horizon

State lawmakers say they are looking at ways to address the concerns people have raised about the state long-term care program. That includes looking at a way to make the benefits portable, so people like El-Khashab could take advantage of them even after moving out of state.

Veghte, the program director, said another idea is to create a way for people who are closer to retirement to continue to pay the state tax for a few extra years, so they can become vested in the program even if they don’t expect to work another decade.

Then there’s the state budget to consider. Without the long-term care insurance program, state officials say Washington is going to face ballooning Medicaid costs as a large population of older workers age. All told, the long-term care program is projected to save the state $1.9 billion in Medicaid costs through 2052.

“We really are attempting to solve what is a pretty large public policy problem, which is that most people need long-term care sometime in their lives, and most of us don't have a plan for that or the resources,” said state Rep. Nicole Macri, D-Seattle.

Although Medicaid can pay for some nursing services right now, people have to be in the low-income bracket to qualify. Macri said many middle-income retirees end up decreasing their assets by selling their homes or drawing down their savings so they can qualify for those Medicaid benefits. That's something the new program hopes to prevent, she said.

Others are concerned that the rush of people seeking to opt out signals deeper problems with the state’s long-term care program.

State Sen. Christine Rolfes, D-Bainbridge Island, said she is troubled that she hasn’t heard from any constituents who are excited about the program, which she supported and voted to approve in 2019. 

If many more people opt out than lawmakers expected, the Legislature may have to make adjustments to keep the program financially stable, said Rolfes, the Senate’s lead budget writer.

She said it might make sense for lawmakers to convene in a special session to postpone the program or make changes before the new payroll tax kicks in Jan. 1.

If the Legislature makes changes later, after the tax takes effect, there’s a possibility that the state might end up sending some money back to workers in the form of refunds, which can get messy and complicated, Rolfes said. 

Right now, the Legislature isn’t scheduled to convene until later in January.

Gov. Jay Inslee has the power to call the Legislature into session to address urgent issues. Inslee spokesperson Mike Faulk wrote in an email that the governor's office is confident the long-term care program is on sound financial footing. Still, the governor is open to working with lawmakers to address any concerns they may have, Faulk wrote. 

Possible ballot measure

State Sen. Lynda Wilson of Vancouver, the top Republican member of the Senate budget writing committee, said she thinks the program needs an overhaul "sooner rather than later."

In the meantime, a conservative group, Restore Washington, is looking to put forward a ballot measure that would make participation in the program optional for Washington workers. Cary Condotta, a co-founder of Restore Washington and former GOP state lawmaker, wrote on Facebook that the payroll tax should be repealed because “it’s a really bad concept and even worse tax policy.”

State Rep. Drew Stokesbary, R-Auburn, is the lead Republican on the House budget-writing committee. Stokesbary argued that the Legislature should have tried to regulate private-long term care insurance plans rather than launch its own program.

“It’s just not a line of business the state belongs in,” Stokesbary said. “We should have spent more time trying to figure out how to solve the breakdowns in the private market, rather than try to replace the private market.”

Stokesbary is already concerned that the payroll tax rate will have to rise to keep the program solvent. Right now, the program has enough money to pay benefits through 2075, according to a state-commissioned study released in October 2020. A ballot measure that would have allowed the state to invest some of the payroll tax money in stocks, keeping the program solvent through 2098, failed to capture voter approval that November. 

Veghte, the program director, said he expects that a similar ballot measure will pass in the future. Wilson, the Republican state senator, has her doubts.

Veghte added that smaller aspects of the program can be tweaked to avoid raising the payroll tax. “There’s no appetite for that,” Veghte said of a future tax increase.

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About the Authors & Contributors

Melissa Santos

Melissa Santos

Melissa Santos is formerly a Crosscut staff reporter who covered state politics and the Legislature.