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California's Proposed Mandatory Long-Term Care Payroll Tax

According to the U.S. Department of Health and Human Services, the prospect of becoming disabled and needing long-term services and supports (LTSS) is perhaps the most significant risk facing older Americans. “70% of people aged 65 and older will need some kind of help with everyday activities like getting dressed or going to the doctor in their lifetime.”

California recently conducted public opinion research on this issue and found that regardless of political party or income level, the majority of Californians are worried about the costs of growing older. Two-thirds of respondents in the research said that they are apprehensive about being able to afford long-term care. Sixty-three percent of respondents worry as much about paying for long-term care as they do for their future health care.

In response, AB 567 (Calderon) established the Long-Term Care Insurance Task Force (Task Force) in the California Department of Insurance to explore the feasibility of developing and implementing a culturally competent statewide insurance program for long-term care services and supports. To learn more about the Task Force, visit California Department of Insurance website.

One recommendation of the Task Force is to implement a program similar to the law passed by Washington in April, 2021. Washington was the first state to establish a social insurance program specifically for long-term care services and supports, funded through a payroll tax of .58% on all W-2 wages. For example, someone earning $100,000 per year would pay a tax of $580 per year toward the long-term care fund.

This tax is used to provide up to a maximum $36,500 lifetime benefit. You have to pay the tax for at least 10 years before being eligible to collect benefits (or 3 years of the last 6 years) and you must be a Washington resident to use the benefits. Individuals may “opt out” of the plan and mandatory tax if they have other long-term care insurance in place. However, such coverage must be in effect by November 1, 2021 to qualify for the opt-out.

California is joined by Illinois, Michigan and Minnesota in potentially implementing a similar plan. Some speculate that this new law could be approved and implemented in California, as early as Fall 2022. From the perspective of both supporters and detractors of the Washington legislation, the $36,500 lifetime benefit is insufficient to provide any meaningful assistance in the event of a long-term care need. It is, however, a clear indication that states are willing to tackle the issue in some form or fashion.

It is important to note that while Washington residents were given the opportunity to opt-out of the plan by purchasing their own coverage, many failed to do so in a timely manner. As a result, the long-term care insurance marketplace became flooded with too many new applications within a very short period of time and carriers temporarily ceased offering new coverage in Washington. This left many who wanted to opt-out of the state plan with no alternative. Californians should be prepared to consider their options early and make plans accordingly once a final decision is made here.

We expect to learn more details early next year and will share information at that time.

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