New payroll tax to hit workers this fall for mandated long-term-care program, but state commission has few answers on how it will work
“Stay tuned” was one of the biggest takeaways from a meeting Tuesday where members of a state commission discussed the status of a new, long-term-care entitlement program run by the state and funded by a new payroll tax on workers.
The law’s rules are still being drafted by the Employment Security Department, and a new eligibility committee was approved to address some of the more controversial aspects of the program, which is now called WA Cares Fund. That move is welcome. A second committee will be created to work with insurance providers to pursue solutions for supplemental insurance, since the state’s benefit is insufficient to cover most individuals’ long-term-care needs.
But staying tuned isn’t a comfortable message for workers wondering if they should try to purchase private, long-term-care insurance with better benefits than the state program by the arbitrary November 1st deadline set by lawmakers. Doing so would allow workers to avoid the coming payroll tax that will bite into their paychecks each year, starting in January.
Sen. Curtis King, R-Yakima, rightly told committee members that “people are looking for answers here that I don't think are there yet. … I think somewhere we have to give them this information in a timely manner so that they can make these decisions — because people don’t know.” He continued, “I’ve had insurance agents call me and ask me these questions. At this point, we’re not sure what the answer is.”
Sen. King is concerned, as I am, about how unfair this payroll tax is, especially to people who live out of state and are forced to pay, soon-to-be retirees who will be taxed but unable to vest or see a program benefit, and people who pay this tax their whole working lives, retire out of state and then receive nothing.
Further, the state program provides bad coverage — the lifetime benefit is only $36,500 and recipients must have advanced disabilities before getting any payments. Private plans are more generous.
He did receive clarity on a question I’ve also had: The $36,500 lifetime benefit, if you do end up needing and qualifying for long-term care and still live in Washington state, is no longer a $100-a-day benefit. That’s helpful.
The rate, the benefit and solvency
Starting in 2022, workers will be taxed 58 cents for every $100 of income. (So $290 a year for someone making $50,000 a year, $580 for someone making $100,000 a year and so on.) There is no income cap. This is on top of all the other state and federal taxes workers already pay.
At Tuesday’s meeting, the Long-Term Services and Supports Trust Commission, which consists of legislators, administering agencies, and some stakeholder representatives, also discussed re-introducing a ballot measure to invest trust funds in Treasury bonds in an effort at solvency. In 2020, voters rejected that idea. As a result, State Actuary Matt Smith told reporter Austin Jenkins that the program will face a $15 billion shortfall, and Republican Sen. John Braun, who voted against creating the program in 2019, said it was time to rethink the entire program and that the Legislature should anticipate backlash from taxpayers.
It is way past time to rethink this bad idea. And the backlash is here. People retiring soon are mad and scrambling, as are people who think they may move out of Washington after their working years. Even people who might one day see the socialized benefit will lose hundreds or more than a thousand dollars each year — wages that used to be part of their household budgets. And taxed workers are not going to be happy when they learn the entitlement can’t pay its way, even with a dedicated tax of 58 cents per $100 on people’s paychecks.
Committee member Sarai Childs rightly commented in the meeting, “ I'm worried about the solvency and just the viability of the tax rate right now without being able to invest in those funds based on the actuarial reports.” Smith has compared the problem to the federal Social Security program, which faces insolvency.
This entitlement program has always been a bad bet, and not just because there is no way to guarantee solvency without raising the tax or decreasing benefits. It offers an entirely insufficient benefit for long-term care, should one need it, and the same benefit is promised to all workers, regardless of how much a worker is forced to pay in.
Sen. Steve Conway, D-Tacoma, is fine with some people paying in but not getting benefits. He told committee members it's like unemployment or workers’ compensation. “These are social programs that we pay into as a community to support unemployed workers and injured workers,” he said, “and we don't necessarily pay in and get a benefit back.”
One-time opt-out here to stay?
Insurance brokers added input at the meeting, telling the state it needs to change the law’s requirement that a worker can opt out of the program with a single attestation within the next year. Steve Cain, a director at LTCI Partners, said that what this one-time attestation is doing is encouraging people to obtain a plan as a tax-avoidance strategy and then dump it.
I think the law’s one-time attestation will change with legislative action next year, regardless of any urgings from the insurance industry — especially if a lot of workers seek an exemption this fall. The state needs people paying into this entitlement program for it to work. When I asked ESD to clarify that opting out required just a one-time attestation and wondered if that would ever change, I was told by an ESD staff member, “You are correct that the Legislature could change any provision(s) that exist under current law in future legislative sessions."
The way I interpret that? It is a one-time opt-out attestation, until the Legislature decides it’s not.
While having too few answers and a whole lot of problems to sort through, the committee did report that it has been doing well with the program’s branding campaign. Ben Veghte, director of the WA Cares Fund for the state Department of Social and Health Services, said the department has utilized a contractor and started marketing. “This spring,” he said, “we're going to do a campaign to build awareness and affinity for the fund, and summer and fall we'll continue that work and begin engaging more on social media.” The first edition of an employer e-newsletter you can sign up for at WACaresFund.wa.gov is also scheduled to go out today.
“Affinity” for the fund?
Expect state agencies to continue a public-relations campaign, emphasizing all the good and none of the bad surrounding this entitlement program that dings the budgets of both high- and low-income wage earners. The WA Cares Fund only cares for and benefits the state’s mismanaged budget.