The Washington State legislature passed the Long-Term Services and Supports Trust Program in 2019 ¹, ². Beginning in 2022, employees in Washington State will have 0.58% of their paycheck withheld in the WA Cares Fund to fund up to $36,500 for long term care services (subject to change, could go up with inflation) ³. Washington State is the first to offer a publicly-funded long term care solution.

Notes

• You become eligible for the program by working 3 of the first 6 years you are eligible for the program, or working a total of 10 years, with 5 uninterrupted years ⁴.
• There is a odd one-time loophole for opting out. You must have an “equivalent” policy in place by Nov 1st, 2021 and you can “opt out” of the WA Cares Fund and the 0.58% income tax collection ⁵.
• The 0.58% income tax isn’t phased in like federal income tax. I.e the lowest-earning employees in Washington will be affected ⁶.
• The 0.58% income tax is applied to gross income. I.e. you don’t reduce your burden by first subtracting off Social Security/Medicare, 401k deductions, HSA, etc ⁶, ⁷.
• There is some weaselly language around how the premium could change over time ⁶. My take: the folks running this program would be smarter to reduce the benefit increase over time instead of raising the paycheck withholding.
• To begin taking benefits you must qualify for at least 3 activities on the Assistance Requirements, e.g. help bathing, dressing, eating, etc ⁸.

Why did they do this?

The Findings section of the law talks about this and is worth reading. The gist is the majority of people over 65 will need long term care but won’t be able to afford it and neither will the state.

Do capital gains and 401k disbursements get taxed?

My reading of this is no. The WA Cares Fund site says “You only pay WA Cares Fund premiums while you’re working - not after retirement.” ⁹.

How are my federal income taxes affected?

It looks like long-term care premiums in general are tax deductible ¹⁰. Though fewer people take itemized deductions since the Tax Cuts and Jobs Act in 2018.

What private long-term care plans are out there for exemptions? Is there still time?

When I visited the top 3 companies for long term care (Northwestern Mutual, Mutual of Omaha, and New York Life) on September 16th, 2021 they said they were no longer taking applications from Washington State.

However, my State Farm agent (we have home and auto insurance through them) offered a very interesting plan. It’s a 50k life insurance policy with a “Flexible Care Benefit Rider”. This plan is per person, can’t do it as a couple. For me (44 years old) the plan would have a $1350 yearly premium that basically funds a bank account with a certain interest rate (currently 2%). At any time you can bail out of this plan with a “Cash Surrender Value” that isn’t far off of the sum of the premiums you put into the plan. State farm needs a month to be confident to get the plan in place by Nov 1st, so I still have a week to decide.

The beauty of this plan is:

• You can get out of it at anytime and get your premiums back without much penalty.
• Meanwhile you get a 50k life insurance policy.
• The 50k death benefit grows as the value of your plan grows (i.e. how much premium you have paid plus what the prevailing interest rate is).
• There are tax advantages to growing your money this way. You can pass it off to children without subject to inheritance tax. Life insurance policy payouts aren’t considered income.

At what salary level should I consider going with a private long term care policy?

Short answer:

• < $100k income: Nope, stick with WA Cares Fund.
• > $200k income: private plan such as described above.
• Anything in between is personal choice.

It’s unlikely that most people will put in more money than the WA Cares Fund maximum benefit payout.

The individual per-capita income for Seattle is $60k (2019 dollars). If someone made that much money at ag 25 and worked 40 years with 2% raises they would pay $21k in premiums. Meanwhile the $36.5k benefit would go up in inflation to $79k. A person would need to make $225k/year to pay that much in premiums.

Show me some scenarios.

Assumptions:

• Making this choice at age 45, working 20 more years, retiring at 65.
• Raises and inflation are 2%/year. (The $36,500 benefit becomes $53k after 20 years.)
• Total cost and benefit you get are at age 65.
• Insurance is State Farm 50k life insurance with Flexible Care Benefit Rider for a healthy non-smoking 45 year old, described above. Premium = $1350/year.

Choice	Yearly income	First month premium	Total cost in cash	Total cost with premium difference invested 5% return	Benefit
WA Cares Fund.	$60k	$29	$8,455	-$4,177	WA Cares $53k benefit.
	$120k	$58	$16,911	$9,365
	$180k	$87	$25,366	$22,906
WA Cares Fund, w/$50k life insurance.	$60k	$39	$10,855	$10,048	WA Cares $53k benefit, $50k life insurance.
	$120k	$68	$19,311	$18,927
	$180k	$97	$27,766	$27,805
State Farm 50k life insurance with Flexible Care Rider.	N/A	$113	$5,399	N/A	See section above about state farm plan.
Private plan for 1 year and cancel it.	$60k	$113	-$7,105	-8,112	None.
	$120k	$113	-$15,561	-$18,251
	$180k	$113	-$24,016	-$27,376

How many people are going the exemption route?

Oregon Public Broadcasting reports that Washington State Employment Security Department is estimating up to 310,000 people are planning to opt out ¹¹.

Can I get a private long term care plan for the exemption letter, then cancel the policy, and put the difference in the stock market?

Aside from getting the original exemption letter, I don’t see any enforcement for employees that try this. It doesn’t say you need a recent exemption letter when going to a new employer ⁶.

However there IS some language in the law for self-employed persons: “A self-employed person who has elected coverage may not withdraw from coverage.” … and “The employment security department may cancel elective coverage if the self-employed person fails to make required payments or file reports. The employment security department may collect due and unpaid premiums and may levy an additional premium for the remainder of the period of coverage.”

Given how bad wealth inequality is in the US, is it lame to opt out of the WA Cares Fund if I am a higher earner?

Washington State has the most unfair state and local tax system in the country. Most Americans Say there is Too Much Economic Inequality. This is a small step for fixing that inequality. Personally I would like to see Washington switch to an Oregon-style income tax and remove the sales tax. As an incremental improvement to the existing plan they could phase in the income tax at a higher amount, say $30k, rather than $0.

To answer the question: I lean towards “yes” but it doesn’t really matter. The people that opt out in the near term will phase out as new Washingtonians join the work force over the coming decades.

References