He focuses on the wholistic cost of care including premiums and out-of-pocket expenses to determine how much stability and control a Retiree wishes to have for the next 35 years of Retirement. As he meets with his Clients traveling down some years through Retirement, they often ask him questions and appreciate the answers based on the ongoing relationship to assist as the years go on.
Today Mark’s time is more limited than in 2007, but he still chats with New Retirees to help show how to keep Medicare.
The Long-Term Services and Supports Trust Act (LTSS) is a long-term care benefit for eligible Washington employees that helps pay for long-term services. The Act levies a 0.58% annual payroll tax on all wages earned in the state. It is known as the “Washington State Trust Act,” “LTSS Trust Act,” and “WA Cares Act.”
What is the cost of the payroll tax?
The payroll tax is 0.58% of all wages including income, bonuses, vacation time, and the value of stock grants. Also, consider how much your wages will grow in the future; your tax payment may grow, but the long term care benefits may or may not.
What benefits are provided by the WA Cares Fund?
Beginning January 2025, each person who is eligible to receive the benefit can access services and support up to $36,500 ($100 per day for up to 365 days). The nominal value of this benefit may change over time.
When would I receive benefits from the WA Cares Fund?
To receive benefits, individuals must be unable to perform at least 3 out of 10 activities of daily living (ADLs) after becoming vested in the program. Individuals become vested when they pay the payroll tax for at least 10 years without a break of 5 consecutive years (unless the individual needs care and is applying for benefits, in which case it is 3 out of the last 6 years).
What if I plan to retire outside of Washington state?
The WA Trust Act only provides benefits to residents of Washington. If you move out of state for 5 or more years, you may forfeit payroll tax premiums and benefits.
As a W-2 employee, is there a way to opt-out of this tax?
There is one way to permanently opt-out of the payroll tax and WA Trust Act, which is by purchasing long-term care insurance (LTCi) before November 1, 2021 and submitting the opt out form between October 1, 2021 and December 31, 2022.
Should I wait until closer to November 1st, 2021 to purchase LTCI to opt-out?
It’s important to educate yourself about your options before making a decision. However, start planning early if you are considering purchasing private LTCi. There are a limited number of insurance products and LTCi specialists in Washington state. During normal times, it typically takes about 30-60 days to educate yourself, apply for, and get approved for coverage. Given the increased volume because of this new payroll tax, we anticipate wait times could significantly increase.
What is private long-term care insurance (LTCI)?
Long-term care insurance is coverage that pays for nursing-home care, home health care, care in an assisted living facility, nursing home care, and personal or adult daycare for individuals with a chronic or disabling condition that needs constant supervision. LTC insurance may offer more flexibility and choice of providers compared to public assistance programs, such as Medicaid.
What are the advantages of LTCI compared to the payroll tax?
LTCi policies may provide:
A much greater pool of benefit dollars in the future to supplement the high cost of care. Longer duration of benefits.
Options to get a return of premiums or life insurance if LTC benefits are never used. The ability to adjust your coverage in the future.
Spousal discounts and discounts for being in good health.
Coverage immediately after issue (no vesting period is required).
Portability to use the benefits in any state or Canada (international benefits may also be available).
Tax incentives, such as the ability to use your Health Savings Account (HSA), tax- deductibility for business owners, and tax-free benefits.
Is the payroll tax a good deal?
The biggest limitation of the payroll tax is the lifetime maximum payout of $36,500.
Actuarial studies suggest that the average length of claim for individuals that need care for at least 90 days may be about 3 years.
The median cost of care in Washington state in 40 years may be close to $350,000 per year.
This makes the average risk of long-term care costs about $1,000,000 over 3 years
Source: Genworth Cost of Care Survey using 4% annual increases to the cost of care.
Individuals who purchase private LTCi often have benefits in the future that are at least 10 times as much as the $36,500 provided by the WA Cares Fund.
The payroll tax may be a poor deal for higher-wage earners who are in relatively good health because they would be able to purchase private LTCi and receive more value for their dollar.
The payroll tax may be a good deal for lower-wage earners or those in poor health, who will pay the payroll tax for at least 10 years, and retire in Washington state.
What is the minimum LTCI coverage I can buy to opt-out?
We recommend purchasing a minimum of $100/day of coverage with a minimum duration of 2 years and adding compound inflation protection. This provides initial benefits at least as great as the state plan plus extended duration and inflation protection that can grow total benefits to several hundred thousand dollars when you are most likely to need long-term care services.
LTCi premiums for this estimated minimum coverage will vary by age and health; the rates typically range from $40 to $160 per month.
How do I use my HSA to fund my LTCI premium?
You may be able to contribute pre-tax dollars into your HSA up to the annual limit. You may be able to pay the premium and request reimbursement from your HSA administrator for you or your spouse each year up to an annual age-based limit.
Does it make sense to buy more than the minimum LTCI coverage?
There are a variety of reasons to buy more coverage. Your LTCi specialist can shop the market to find the best value. Reasons to buy more than the minimum:
The median cost of care in Washington today is $200 per day compared to the $100 per day payout offered by the minimum plans.
Private LTCi may be a better value when buying more years of coverage because the additional years cost incrementally less.
You may be able to pre-pay the premiums to have your premiums paid before retirement. Extra features, such as return of premiums, may be available if the LTCi is never used.
You may be able to pay with pre-tax dollars from an HSA or write off the premiums as a health insurance business expense.
How do I use my business to fund my LTCI premiums?
Business-paid LTCi premiums may be a tax-deductible business expense as health insurance for employees and spouses.
Self-employed business owners may also be able to deduct LTCi premiums on their individual tax returns up to an annual age-based limit.
Owners can select which executives or employees to include in the LTCi program.
LTCi benefits are generally received tax-free even after the tax deduction.
I want to consider my options. What’s next?
By filling out the form here, you can meet remotely with Mark Rogers to help guide you to the best plan for your dollar.