Buy Long-Term Care Insurance Now to Save Later

by | Jul 16, 2022

You need to buy long-term care insurance now to save later.

Why?

Good question with an easy answer.

Do you want your state to take money from your earnings to pay for your future long-term care needs? If your answer is no, you must buy long-term care insurance. Even a small “starter” policy will likely be enough for you to be exempt from any potential state program. You might not think it can happen in your state, but it happened in the state of Washington.

On a quiet day in 2019, the Washington state legislature passed the Long-Term care Trust Act, now known as WA Cares. Since most people ignore what their state legislature is doing until a law affects them, no one knew what was coming in 2021. We knew. We were to Olympia to watch the bill be signed into law, and we got ready for the flood of people wanting to opt out of the WA Cares program. We helped over 1,200 people purchase small “starter” long-term care insurance policies so they could be exempt from the WA Cares Fund.

How does what happened in Washington State affect other states?

Good question with an easy answer.

Medicaid. Medicaid is the single largest payer of long-term care costs in the United States. Each state administers the Medicaid program, and all states are being crushed under the weight of long-term care. States are desperate to try something to offset the cost of long-term care in the Medicaid program. Even a small long-term care program would delay costs to the Medicaid program. Hence, a “small” payroll tax deduction for all wage earners. The state of Washington will assess a payroll tax of .58% on all wage earners. For that tax, anyone who had paid into the plan long enough to qualify for benefits is eligible for a lifetime maximum of $36,500 in long-term care, payable at $100 per day. While there is a cap on the benefit received for the tax, there is no cap on the tax. Someone earning $50,000 per year would pay $290 per year in payroll tax deduction. However, someone earning $200,000 per year would pay $1,160 per year in payroll tax deduction. Both would receive the same $36,500 in benefits.

Fortunately, Washington state provided its residents with the option to be exempt from the upcoming payroll tax deduction if they owned a long-term care insurance policy before November 1, 2021. This created a flood of people wanting to buy long-term care insurance. Unfortunately, the flood was so huge that insurers stopped selling in the state of Washington due to the sheer number of applications that needed underwriting and because there was no assurance in the law that people wouldn’t simply cancel their policy after getting their exemption. (Washington State passed legislation in 2022 fixing some of the errors of the law.)

What does this mean for you?

Buy long-term care insurance now before your state enacts a similar program.

As of the date of this writing, there are several states actively reviewing a Long-Term Care Trust Program with bills in committee. California, Michigan, Minnesota, and 12 other states are actively investigating LTC Trust programs of their own. Some states’ bills list the deadline date for owning a policy as a date in the past, not a date in the future. For example, the New York Long-Term Care Trust Act states that you must own long-term care insurance before January 1st of the year the law becomes effective. For example, if the law becomes effective anytime in 2023, you must own long-term care insurance before January 1, 2023.

Act now before there is a rush in your state to avoid a new LTC payroll tax deduction.

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