Voters in the state of Washington rejected a proposal that would have made a payroll tax to fund long-term care optional.
The proposal, known as Initiative 2124, failed by an 11-point margin in November.
Each Washington worker will continue to have 0.58 percent of his or her wages taken from every paycheck to fund WA Cares, a program that promises to provide each resident a lifetime benefit of $36,500, indexed for inflation, to pay for long-term care when needed.
Most workers must participate in the program, even those who purchase long-term care insurance privately.
Expects Big Shortfall
Washington is the first state to impose such a tax to pay for long-term care, and it could be the last, says Devon Herrick, a health care economist, and policy advisor to The Heartland Institute, which co-publishes Health Care News.
“The long-term care tax in Washington State is likely to become a costly entitlement that will quickly become insolvent,” said Herrick. “The benefits are too small to provide much in value, and the cost will likely rise faster than wages or premiums.”
Herrick says a simple calculation shows revenues will fall far short of what is required under the current plan.
“To break even on one resident claiming benefits, the state would need to collect taxes on nearly $6.3 million in lifetime earnings: $6,300,000 times 0.058 equals $36,540,” said Herrick. “Over time, there will be pressure to raise premiums above 0.0058 and raise benefits above $36,500.”
No Escape
An analysis by actuarial firm, Milliman for the Washington Office of the State Actuary showed a forced tax on all workers was the only way for the program to survive.
“Under a voluntary structure, individuals with lower claims risk or higher wages may choose to not participate,” states the analysis. “If this ‘selection’ occurs, the remaining covered individuals in the program would have high claims risk and/or lower wages, therefore, requiring a high premium assessment for the program.”
Lower-risk participants or those with higher wages would reevaluate their participation in the program, and if they calculated it did not provide value above their expected payments, they would probably drop out, causing a downward revenue-versus-costs spiral.
Medicaid Effect
Washington voters are responding to a crisis in long-term care that all Americans are facing, says Stephen Moses, president of the Center for Long-Term Care Reform.
“Few people plan or save for long-term care because they can easily qualify for Medicaid to pay for it,” said Moses. “The government deducts private medical and long-term care expenses from income before applying a low-income standard, and most large assets such as home equity are exempt, meaning income and assets can be very high and still qualify for Medicaid coverage. Government-paid long-term care discourages private coverage, creating a provider shortage and rising costs.”
In a report published by the Paragon Health Institute in 2023, Moses recommended closing eligibility loopholes to create a more robust market for long-term care.
With the median family income in Washington at $89,067 in 2021, the state’s residents are getting a bad deal from the system, says Herrick.
“That adds up to more than $500 in annual premiums [for the tax] per household,” said Herrick. “Not accounting for income growth or compound interest, the tax would amount to about $20,000 over a 40-year career, which would be better deposited in a family’s health savings account.”
AnneMarie Schieber (amschieber@heartland.org) is the managing editor of Health Care News.