We previously blogged about the WA Cares Act, a law creating a public long term care benefit for certain Washington employees. Under the law, employees pay a payroll tax in exchange for access to future long term care payments. Employees could opt out of the law by obtaining private long term care insurance coverage. The deadline to opt out expired December 31, 2022.
A federal court largely dismissed a lawsuit challenging the act in 2022, theoretically clearing the way for the law to go into effect.
But the Washington State legislature put the law on hold while it made some changes. The law softened the requirement that a person have paid the tax for ten years before becoming eligible for benefits. Persons born before January 1, 1968, can access limited benefits as long as they pay the tax for at least one year. This was done to avoid the unfair result of persons within ten years of retirement age the date the Act becomes effective being deprived benefits.
The updates also expand who can opt out of the Act. Now, certain veterans, spouses of military service members, persons who live outside Washington but work in Washington, and persons working temporarily in the United States can opt out of the act. Again, this was intended to avoid the unfair result of persons paying the tax without possibly of receiving the benefit.
These new exceptions are in addition to the existing exceptions for self-employed persons, tribal employees, certain union members, and government workers.
The law is currently scheduled to go into effect on July 1, 2023. Effective that date, employees who have not opted out will have .58% of their wages withheld to pay the payroll tax.
There are also more changes under consideration in the legislature. Probably the most important one relates to the possibility that employees who opted out by purchasing their own long term care insurance re-certify that they continue to maintain that insurance on a regular basis. As written, the Act doesn’t require this.
That means employees who opted out could cancel their private insurance the day after opting out and never pay the Act’s payroll tax despite not maintaining their own insurance. The probability that thousands of Washington workers purchased long term care insurance with the intent of canceling their coverage immediately after opting out from the Act is suspected to have driven insurers’ reluctance to sell these policies in the months leading up to the opt out deadline; insurers lose money if they go through the expense of underwriting and selling coverage that will be canceled almost immediately.
But the legislature is considering changing this. One proposal would require employees to regularly re-certify that they maintain their private coverage to keep their opt out status and avoid paying the payroll tax. Importantly, a proposal requires employees who cancel their private coverage after opting out to not only pay the payroll tax in the future, but pay back taxes for the period after canceling their private coverage—with interest.
This proposal is just a recommendation, for now. But the legislature may be moving in that direction.
As a practical matter, this means that employees who purchased private coverage for purposes of opting out of the Act might want to maintain that coverage until the legislature works out whether and how it will require recertification of private coverage to maintain the opt out.
Seattle Insurance and ERISA Blog 