November 24, 2021, Ben Swett, The SeniorCare Investor - In just five short weeks, the residents of Washington State will begin paying a new payroll tax to fund a “long-term care” benefit, called the WA Cares Fund. It is the first state-wide mandated LTC tax, and we have previously voiced our concerns about it. But it will be a reality for residents soon.
Years ago, we went very public against the Class Act that was part of the Affordable Care Act, basically calling it a financial fraud that was never going to pay out for anyone. Even the authors of the ACA finally admitted it would not work, and eventually withdrew it. Like in Washington State, the federal program was well-intentioned (well, sort of) to try to fund some long-term care costs for the elderly and do it outside the Medicaid program, but as always, the devil is in the details.
Effective January 1, residents of the Evergreen State will pay a 0.58% payroll tax with no cap. There was an opt-out provision if you purchased LTC insurance elsewhere, but that market quickly dried up. One of our biggest problems with this fund is that the maximum lifetime benefit is just $36,500, with a daily maximum of $100.
While this may help some people pay some care bills in the short term, it is not $36,500 of care bills that can bankrupt someone (although that usually does not happen, despite what the mainstream media likes to say). There is nothing long-term about this act and the fund itself.
So, that is our biggest problem with it. But there seem to be more losers than winners the way it is currently written. These are the residents who definitely will get screwed plus others who most likely will:
- If you are not working, then no payroll tax and no benefit.
- If you are a stay-at-home parent and not working, the same thing.
- If you are already retired, out of luck as well.
- If you are 63 and are about to retire at 65, you will not meet the eligibility requirements of paying into the system.
- If you work for the next three years and then go on unemployment for several years, eligibility goes out the door.
- If you live out-of-state but work for a Washington-based company and are on its payroll, you pay the tax but receive no benefit.
- If you move out of state anytime after you meet the eligibility requirements, you will receive no benefit, even if you paid in for 25 years (seems very unfair).
- If you are 25 and pay in for the next 40 years, who knows what will be left in the fund or if it will even exist, but you will have already paid the tax. Sort of what 20-somethings are fretting about today with Social Security.
According to Genworth, the average cost per month for a private room in a nursing home in Washington is $11,954, $6,750 for assisted living and $6,670 for home health care. In addition, the WA Cares Fund requires you to need assistance with three ADLs, compared with private insurance which is usually two. So, our question is, who, exactly is this fund going to help and for how long? There is nothing long term in it.
The skeptic in us says that all of those problems of people not ever receiving the benefits have been calculated into the actuarial numbers to come up with the 0.58% tax rate and the 2025 start date to receive benefits. The Class Act back in 2010 had a similar delay, but fortunately it was discovered that the money (premiums) being paid into it was actually going to be used for other parts of the ACA, sort of a Ponzi scheme. Lucky it was canceled before it was ever started.
Some people have called the WA Cares Fund a good start that should be improved upon as opposed to being nixed. The problem is that the improvements will never be enough, and the tax would become too high. One good aspect of the act is that there does not appear to be a restriction on coverage for pre-existing conditions. But this does not make up for its weaknesses.
The state claims that it will save $3.9 billion in Medicaid costs by 2052. First, we would love to see what assumptions were made. Second, we would also like to know what would be saved if the state tightened eligibility requirements to receive long-term Medicaid in a nursing home.
The bottom line is that we just don’t understand how you can tax a 25-year old and tell them if they leave the state in 20 years it was all for naught. It would be like telling someone from California that if they move to Mexico for retirement they will not collect their Social Security payments. On the other hand, that might keep it solvent for a few more years.