On May 13th, 2019, Governor Jay Inslee signed the law that would make Washington the first state in the U.S. to establish a program to help offset the costs of long-term care (LTC). The program provides Washingtonians with a lifetime benefit of up to $36,500 to pay for the long-term care costs of individuals who need assistance such as daily in-home caregiving, meal deliveries, help with medication and nursing home fees which up until now, these services had to be paid for by LTC insurance, Medicaid and private funds.
What Motivated the Establishment of the LTC Insurance Program
A large number of individuals over the age of 65 may need long-term care during their lives. It is also one of the greatest financial risks since many of us may not be able to afford the care we need.
The U.S. Government Accountability Office estimates that the median retirement savings for individuals over the age of 65 is about $150,000 but unfortunately it has been found that the lifetime cost of care averages over $250,000. Currently, Medicare covers only limited long-term care which means that most individuals are not covered for possible long-term care needs.
According to the American Association for Long-Term Care Insurance, only just over 8 million Americans are protected with private LTC Insurance. Consequently, if our government does nothing, many families will be facing serious financial issues since they will have to spend their life savings on LTC. Additionally, the Medicaid budget will have to increase significantly.
The AARP 2016 report on family caregiving estimated that over 850,000 Washingtonians have to assist family members with LTC. Most of us consider helping family members as being part of our duty but the report found that an average of 20% of our income may go to out-of-pocket costs related to caregiving. Furthermore, as caregivers, we may have to reduce the time we spend at work and as a result lose income, social security credits or other benefits.
How The LTC Insurance Program Will Be Funded
The funding for the LTC benefits will be provided through a payroll tax of 0.58% on employees with no wage limitation, and a wide range of services. The tax won’t be collected, however, until the beginning of 2022. Eligible beneficiaries can expect to start receiving the benefits at the beginning of 2025.
The eligibility guidelines for the LTC insurance program mean that it is not universal. For example:
- You must be a Washington resident 18 years or older.
- Paid payroll tax for 3 years within the past 6 years or paid payroll tax for a total of 10 years with at least 5 consecutive years.
- Must have worked at least 500 hours in order for a year to count.
- Self-employed individuals have the option of not participating in the program.
Current retirees, children with disabilities and adults with disabilities who work less than 10 hours a week are exempted from the work requirements.
Who Can Benefit
The benefits provided by the LTC insurance program is not only meant to provide support for the elderly but for young people who experience injuries or illnesses which could result in them needing long term care. Support can be provided for families that care for individuals who do not require institutionalized assistance. The benefits could be used in part or as a whole to cover needs over months, years or even decades.
It’s also important to note that families will be able to decide how to spend their benefits. For example, they could be used to pay for in-home care, nursing home care, home modifications, meals on wheels and even compensation for unpaid family caregivers.
The main goal of the LTC Trust Act is to reduce the uninsured risk faced by most Washingtonians and help protect our state’s Medicaid budget. It provides us with a peace of mind knowing we can receive the care we need. However, even before the LTC Insurance Program, the AARP rated our state as the best state in the U.S. to grow old. This ranking is due to our excellent home and community-based care system which has been developed during the past twenty years.
At the moment, despite the fact that many other states are developing their LTC systems, there is no state reciprocity system in place to help those who have to move to another state. If you pay into one state’s LTC system and move to another state, your contributions cannot be transferred. Hopefully, in the future, this will not be the case and perhaps some solutions can be found on the federal level as well.
For more information about the Public Long-Term Care Insurance Program and how it can affect your retirement plans, please use our online contact form or call us at (888) 671-7891 today. Our team of advisors will work with you to develop a customized financial plan specific to your personal goals and current needs!
Securities and financial planning offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Multop Financial is not affiliated with LPL Financial, and offers tax and accounting services separate and apart from LPL Financial.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. Contact your plan sponsor if you would like more details regarding applicable provisions of your specific retirement plan.