LTC Bullet: How to Prepare for the Coming Wave of Government Long-Term Care Programs

Friday, December 3, 2021

Seattle—

LTC Comment: Ironically, a wave of state-level social insurance programs may unleash the private LTCI market at long last. We explain after the ***news.***

*** SHOPPER’S GUIDE MIS-DIRECTS: Lynn Voss of longtime Center friend and corporate member GoldenCare reports that the Shopper’s Guide to Long-Term Care Insurance, the 2022 Medicare and You publication, and the NAIC website have undergone modifications that left some of their hyperlinks to critical information about LTC insurance dysfunctional. We join her in calling on the powers-that-be to fix the problem. Simply redirecting the broken links to links that work would resolve the matter without having to recall and correct the publications. What’s worse than clicking on a link to information you desperately need and getting sent to a “404 Page Not Found” error? ***

*** LTCIrony: For more on the theme of today’s LTC Bullet check out Steve Moses’s column titled “Long-Term Care Irony” in the current issue of Broker World magazine. ***

 

LTC BULLET: HOW TO PREPARE FOR THE COMING WAVE OF GOVERNMENT LONG-TERM CARE PROGRAMS

LTC Comment: My first reaction to the WA Cares Fund, Washington State’s revolutionary experiment in state-level LTC social insurance, was very negative: LTC Bullet: The Keystone Kops of LTC Insurance. The program’s clumsy design, inept execution, and dangerous precedent were very worrisome. It seemed like the fondest hopes of the analysts, advocates and politicians who have abandoned free market principles of private insurance in favor of compulsory socialist plans that have failed everywhere they’re tried were being realized.

Then a strange thing happened. Citizens of the Evergreen State stampeded for the exits as soon as the WA Cares Fund offered a way to opt out of the program. Purchase private LTC insurance by November 1 and you can avoid forever the compulsory payroll tax and mediocre benefits of the public plan. A fire sale of private long-term care insurance ensued, like nothing that market had ever seen. Demand quickly overwhelmed the ability of private LTCI carriers to supply the product. Untold numbers of Washingtonians were left uninsured and trapped in a program the state’s citizens had twice voted against, rejecting it at the ballot box in 2019 and refusing to fund it with risky investments in 2020.

Other states, including California, Hawaii, Maine, Michigan, and Minnesota, are reported to be planning programs similar to Washington’s. Unable to lure federal lawmakers down the primrose path of yet another underfunded national program like Social Security and Medicare, many state politicians want to take that challenge on themselves. They’re swimming in excess revenue now thanks to the explosion of economic activity created by the Federal Reserve’s artificially low interest rates and easy money. Like Washington State’s pols who are ignoring their program’s $15 billion dollar actuarial shortfall, lawmakers in other states assume the artificial bubble economy producing the current tax windfall will go on forever.

It won’t! It isn’t, as the current inflation surge shows. But what can we do in the meantime to mitigate the damage of these misguided social insurance programs? That’s the subject of today’s LTC Bullet. ACSIA Partners inspired the following white paper titled “How to Prepare for the Coming Wave of Government Long-Term Care Programs.” Read and heed it while there is still time to anticipate and adapt to the next market-disorienting curveball to come from state and federal policymakers.
 

How to Prepare for the Coming Wave of Government Long-Term Care Programs

America faces a long-term care financing crisis. Much of the growing financial burden will fall on employers and employees as state and federal governments mobilize to provide home care, assisted living and nursing home care for a rapidly increasing elderly population through employee payroll taxation. It behooves businesses to get in front of the long-term care challenge by establishing private insurance plans before their options are limited or closed by new government initiatives as is happening now in Washington State. This white paper explains the problem and offers a solution.

What to Do? Decades of special long-term care commissions, research studies and proposals have failed to fix the existing system. The Pepper Commission, 1990; the Medicaid Commission, 2006; and the Commission on Long Term Care, 2013 all struggled with the long-term care problem but were unable to mobilize sufficient political support to implement major changes. Lately, however, a consensus among scholars and politicians has formed around pursuing a social insurance approach to long-term care reform. The plan is to address long-term care problems with a mandatory, payroll-funded program financed by employees and/or employers paying into a trust fund on the model of Social Security and Medicare.

Status of Reform. The federal government and several states, including California, Hawaii, Illinois, Maine, Michigan, Minnesota and Washington, are exploring various forms of social insurance to address the long-term care challenge. So far, only Washington State has implemented such a program. The WA Cares Fund provides a case study in the difficulty of conceiving, designing, implementing and enforcing a compulsory social insurance program at the state level. It is a wake-up call for citizens, employees and employers throughout the country to think, plan and prepare early for long-term care before new government programs restrict or close off existing options.

The WA Cares Fund. The State of Washington is implementing the country’s first social insurance program for long-term care. Mandatory employee payroll deductions of .58 percent of gross wages begin/began January 1, 2022. The proceeds of this tax will go into a trust fund from which the state promises to pay beneficiaries, who have paid into the fund for at least 10 years or otherwise qualify, up to $100 per day to cover long-term care expenses, but with a lifetime limit of $36,500. Individuals may opt out of paying the extra payroll tax by showing proof of qualifying private long-term care insurance no later than November 1, 2021.

Fraught with Problems. From its conception, the WA Cares Fund has faced opposition from voters, workers and employers.

Their concerns include:

  • The Long-Term Services and Supports (LTSS) Trust Commission’s failure to heed a voter ballot advisory opposing the program

  • The trust fund’s 75-year, $15 billion shortfall

  • The Commission’s plan, voted down last year but to be offered to voters again, to close the budget deficit by investing the trust fund in riskier securities than the state otherwise allows

  • The inadequacy of the $36,500 total lifetime benefit

  • The inability of program beneficiaries to take their earned benefits with them if they move out of Washington State

  • Confusion and late decisions about whether and how workers can opt out of the program by purchasing private long-term care insurance.

The Opt-Out Alternative. The original 2019 state law creating the program now called WA Cares Fund did not include an option not to participate. In April of 2021 the state legislature approved a one-time opportunity for workers to avoid the payroll tax by showing proof no later than November 1, 2021 that they own comparable private long-term care insurance. With little more than half a year for the opt out alternative to be clarified, publicized, and sought by workers, the burgeoning demand for private coverage quickly overwhelmed the long-term care insurance carriers’ ability to underwrite it. On August 30, 2021 National Public Radio reported “Long-term care insurance companies have temporarily halted sales in Washington. The move follows a frenzy of interest … prompted by a November 1 deadline to opt out of a new state-run long-term care program.”

For those Washingtonians who have obtained private long-term care insurance and qualified for the WA Cares Fund exemption, it is important to be aware of this new language recently added to the WA Trust website – Make sure you save your insurance policy, because you may need to provide it in the future. But you won’t need it for this exemption application.” The implication is that the state may require proof the insurance remains in effect to validate the exemption in the future.

Other states have indicated that they may establish an opt out date prior to the implementation date to avoid anti-selection; in effect, residents of these states would have to have coverage in place prior to the announcement of their state plan to avoid the payroll tax.

The Insurers’ Dilemma. Long-term care insurers, including life insurers with hybrid product (life insurance with a long term care rider) offerings, are in business to provide coverage for suitable customers who want it, so extra demand for their product was welcome. But because the new demand surged in such a short time, they were unable to accept, review, underwrite and approve such a huge number of policies by the November 1, 2021 deadline. One carrier received more applications in one week than in the previous two years. Concern arose that people eager to avoid the payroll tax might try to purchase policies otherwise unsuitable to their needs. In response carriers began placing restrictions on policies sold in Washington such as: minimum daily benefits, mandatory inflation protection, ceasing the sale of facility-only policies, minimum issue age, even a charge back of agent commissions if premiums are unpaid in the second year of policy ownership. Precisely who and what will qualify for the opt out remains in limbo as the Washington State Employment Security Division (ESD) has not yet provided definitive guidance.

The Employers’ Dilemma. The short implementation schedule of the WA Cares Fund caught many Washington employers unaware. Forward-looking Employee Benefit insurance brokers were advising some of the US’ largest companies’ human resources departments to act quickly to advise their personnel about the new payroll tax and to offer opt-out solutions. Large, mid-sized and smaller companies were blind-sided as were out-of-state firms that have employees in Washington State. Since the WA Cares Fund is still sorting out who must pay the payroll tax, who can opt out and exactly how, any company with employees in Washington is stymied in how to accommodate the new mandate.

On a Positive Note. The growing interest in new government programs to fund long-term care is awakening consumers to the need for private LTC protection. The threat of added deductions from their take home pay incentivizes workers to seek quality private coverage in order to avoid potentially problematical public coverage. It should also inspire their employers to get ahead of the curve in order to avoid the kinds of problems created by delayed clarification and implementation of the WA Cares Fund.

Act Now. Insurance distributors are receiving more calls from employers and Employee Benefit Brokers, especially in states that are considering programs like the WA Cares Fund. Business executives and entrepreneurs see what is happening in Washington. They want to get ahead of the issue by setting up worksite long-term care insurance programs for employees now. By doing so, when the government comes to offer a compulsory public long-term care program, many of their employees will already be protected. Neither their company nor their employees will have the problems encountered in Washington.

The goal of sharing this white paper with you is to outline the very real financial and physical capacity problems the insurance industry had in accommodating the unprecedented demand for coverage as the result of the implementation of the WA Cares Fund. As other states are contemplating implementing similar programs, we will inevitably experience the same problems, and if deadlines are set prior to the launch of a given state's program, we will be in a situation where we cannot provide a solution to avoid a payroll tax or similar funding mechanism.

As we encourage you to get in front of this issue by having the conversation with your employer clients, the message is the same to them: let's get in front of this problem and discuss the implementation of a carefully planned long-term care program.

Contact ACSIA Partners to begin the process.
 

 

Author Stephen A. Moses is president of the Center for Long-Term Care Reform, www.centerltc.com. Reach him at smoses@centerltc.com.