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As a larger number of Americans approach retirement age and a growing number of baby boomers exit the workforce, employers are considering if they should offer long-term care (LTC) insurance to their employees. Per the Department of Health and Human Services (HHS), ‘someone turning age 65 today has almost a 70 percent chance of needing some type of long-term care services and supports in their remaining years; women need care longer (3.7 years) than men (2.2 years); and one-third of today’s 65 year-olds may never need long-term care support, but 20 percent of those that need LTC will need it for longer than 5 years.’ These statistics are sobering for many, including state legislatures, as they see an increase in their Medicaid spend as more residents require access to LTC services. What LTC trends should employers familiarize themselves with?
State Mandated LTC Coverage Employers should be prepared to embrace state-run LTC programs, as a growing number of states are considering implementing mandatory LTC plans. As of May 2023, there were 12 states (Alaska, California, Colorado, Hawaii, Oregon, Illinois, Michigan, Minnesota, New York, North Carolina, Pennsylvania, Utah) considering enacting legislation to implement a state-run LTC program. Both Washington and California have enacted legislation to implement state-run LTC programs, while New York failed to enact its mandatory LTC state-run program during the 2021-2022 legislative session “LTC benefit payments are tax-free, therefore allowing employees to access care when they need it most” Employers with employees in the state of Washington are the first employers in the nation required to withhold LTC taxes from employees’ income. Effective July 1, 2023, Washington state requires that employees who work and live within the state contribute $0.58 per $100 of gross wages to fund the state’s LTC program, known as the WA Cares Act. The WA Cares Act will provide Washington residents a LTC lifetime benefit of $36,500, if the Washington resident meets certain criteria. The cost of funding the program is borne entirely by employees, with no income cap on withholdings. The state allows for lifetime exemptions from the WA Cares Act if employees purchased a qualified LTC policy before November 1,2022 and filed for an exemption with the WA Employment Security Department (ESD) before Dec. 31,2022. Temporary exemptions are still granted by the WA ESD to individuals who meet certain criteria (work in Washington but live in another state, disabled veterans, spouses and domestic partners of military service members and a few others). Employees are required to furnish their employers with copies of the WA ESD exemption letters to avoid becoming subject to WA Cares Act withholdings Under the WA Cares Act, employers bear the responsibility to withhold, report, and remit WA Cares Act contributions to the state every quarter; collecting and storing copies of WA ESD exemptions; and suspending or initiating WA Cares Act withholdings once the employee qualifies or ceases to qualify for a WA Cares Act exemption. If the employer fails to suspend withholdings from employees’ income upon receipt of an exemption letter, the employer is financially responsible for returning excess contributions to employees, as the state of Washington will not process reimbursements. California is the second state in the nation to enact legislation implementing a state-run LTC program. California implemented a long-term care taskforce to review the plan design, benefit offerings, funding mechanisms, and cost projections of the staterun program. The taskforce is currently reviewing lifetime benefit proposals that range from $36,000 to $144,000, most likely resulting in a higher price tag than Washington state’s program; portability rights, and funding, which includes mandatory employee and employer contributions to fund the state LTC program. The taskforce will render a final decision in January 2024, once the actuarial report is presented for approval in December 2023. Once the plan design, cost, and funding are approved by the taskforce, the proposal will be submitted to the legislature, which may delay the effective date of the program until 2025 or later. Employers should closely monitor developments in California, as this state most likely will implement a much more robust LTC program than Washington and become the standard for other states to replicate. Next Steps for Employers Employers should closely monitor legislative developments at a state level, as state mandates may differ by state. Compliance of one state’s LTC mandate may not satisfy the compliance obligations in a different state. Employers should also be leery of insurance carriers and consultants that purport to know the plan design of a proposed LTC state-run program, as the plan design will be finalized once the state legislature approves it. Therefore, employers considering offering LTC coverage to employees for the sole purpose of complying with a state mandate should wait until the state approves the plan design. Once the plan design is finalized, employers can proceed to review LTC options, as LTC insurance carriers will be required to sell plans that comply with the state minimum requirements. Employers with an aging workforce should still consider offering a group LTC program to employees, as 70 percent of their employees who reach age 65 will require long-term care services. Offering a group LTC program is beneficial to employees, as the cost of group LTC is usually lower than the cost of individual LTC coverage and lifetime benefit maximums tend to be higher than those available in the individual market. Employees who have Health Savings Accounts (HSA) can also pay for the cost of LTC premiums from an HSA, based on an age scale, allowing older employees to pay a larger portion of their LTC premiums on a tax-free basis. LTC benefit payments are tax-free, therefore allowing employees to access care when they need it most. As the need for LTC continues to grow, employers should consider LTC insurance as an essential part of their benefits package.