Let’s take a break this week from talking about markets. After all, we all know there is more to your financial picture than just your investment accounts. That’s why we are a “planning-centric” firm, and that’s why we’ll take some time today (and periodically in future updates) to look at a planning topic that might be on your mind.
Today’s topic is the newly passed “Long-term Care Trust Act” here in Washington State. It is not a scintillating topic by any means, and so you may have glossed over any news coverage of this as it was passed into law in May. Even if you did dive into the details, you may still be left wondering, “Will this help me?” I hope this brief piece will give you the info you need or spark the right questions that will lead you to the right answers.
I probably do not need to cite any of the glaring statistics for you to recognize that long-term care is expensive. In fact, the numbers are often staggering – and the costs are out of reach for many. Some will choose to “self-insure.” Others will utilize long-term care insurance policies. Still others will rely on the help of family. For those least fortunate, they will lean into Medicaid coverage (no, Medicare does not cover long-term care). In an effort to relieve some of the financial burden, the Washington State Legislature recently passed the “Long-term Care Trust Act,” which is essentially a state-run long-term care (LTC) insurance program that operates similarly to the way Social Security does on the Federal level (with some very key differences). It’s the first of its kind in the USA.
In short, beginning in 2022 workers in the State of Washington will be required to pay a payroll tax of 0.58% and will in turn be eligible to receive 365 “benefit units.” These units are currently valued at $100 each, though this number will be indexed to inflation. Do the math, and this translates to a lifetime benefit of $36,500 that can be used towards qualified LTC expenses once it is deemed that you need assistance with three “activities of daily living” (ADL) [see below for a full list of the six Basic ADLs]. So no, you don’t just get this chunk of money for simply growing old. You must have substantial needs and you must have costs related to those needs. And because it is never that simple, let’s look at a few other key criteria that were included (or omitted) from this new law.
What you also need for this benefit to be of value to you is:
- Still be a resident of WA State when the time comes to need benefits. Unlike Social Security that is portable, you simply lose out on the premiums you paid if you no longer live in the Evergreen State when you are deemed as needing assistance with three ADLs. This can be a big deal – as so many Washingtonians find their way to new homes in retirement – whether that’s to chase better weather or simply to be nearer to family.
- Not already be retired! Actually, it’s more than just that. The way the program works, you have to either pay into the program for “a total of 10 years without interruption of five or more consecutive years,” or 3 of the last 6, in order to be eligible. So no, this is not a saving grace to those who have completed their careers but not planned for the cost of long-term care. It also means you cannot simply move to Washington in retirement and expect to receive a LTC windfall (sorry to our friends in Portland who were already planning their move to Vancouver!).
- You may have already picked-up on the fact that a spouse who does not work outside the home is excluded from this program as well, which is another key difference with Social Security where a spouse is eligible for benefits based on the other spouse’s earnings record. Last I checked, old-age infirmities do not discriminate between those who went to the office versus those whose “office” was home. I find this detail to be a bit ironic, as many people leave the workforce early to care for loved ones in their old age – and in doing so, they may in turn give up benefits that could help them in their own later years. Will this be amended down the road? I do not know, so I am not going to plan on it!
It is important to also point out that this program is not voluntary…for the most part. If you can demonstrate that you have LTC insurance already in-place you can request exemption from the premium assessment. Also, my reading of the bill indicates that self-employed individuals may opt out (no news coverage has confirmed this).
Putting on my planner’s hat and adding my own color to this discussion, the first thing I will point out is that this new benefit should in no way distract you from the hard work of saving for your long-term care needs. While $36,500 is a nice chunk of change, it will only begin to make a dent in what you will need should you reach a point of needing true LTC. We have seen clients pay north of $12,000 a month for care in their later years, and we expect these costs are only going to climb. You thought paying for college was expensive!
Additionally, it is important to recall that not all “long-term care” actually qualifies for this benefit – or even for the onset of benefits from a private LTC policy you may already have in place. Simply growing old is expensive, and unless you need assistance with three ADLs the cost of fitting new support rails in your shower, the cost of Uber when your kids take away your license, or the cost of moving out of your three-story home to a more accommodative residence are going to be on your shoulders.
Below, I have included two additional resources for you. The first is a sleep-aid known as the full text of this new law. The second is a more interesting read – a recent piece from Morningstar about creating a game plan around LTC. We hope you will reach out to us if you have any questions around this new law or around LTC care in general.
- Bathing and showering
- Personal hygiene and grooming (including brushing/combing/styling hair)
- Toilet hygiene (getting to the toilet, cleaning oneself, and getting back up)
- Functional mobility, often referred to as "transferring", as measured by the ability to walk, get in and out of bed, and get into and out of a chair; the broader definition (moving from one place to another while performing activities) is useful for people with different physical abilities who are still able to get around independently.
- Self-feeding (not including cooking or chewing and swallowing)