January 23, 2022

Washington State’s Celebrated Long-Term Care Program Moves Towards Trouble

Nearly two years ago, social insurance advocates celebrated the creation of a new long-term care program in Washington state. For example, here’s what the nation wrote in May 2019:

“The Long Term Care Trust Act, passed by state legislatures in late April and set to be signed by Governor Jay Inslee Monday, establishes the country’s first social insurance program to pay for long-term care. All residents pay 58 cents on every $100 in state trust income. After state residents contribute to the fund for ten years — three if they experience a catastrophic disabling event — they can spend $100 a day up to a $36,500 lifetime limit when they need help with daily activities such as eating, bathing, or get dressed. . . .

“The architects of the legislation tried to find some that would be enough to meet people’s needs while not being catastrophic if everyone [made claims] at the same time,’ [AARP vice president Elaine] explained Ryan. ‘To make it actuarially responsible, so that people are guaranteed to receive benefits.’

“The universal structure and financing of the policy is also important. All workers pay to the fund through payroll taxes and can then claim benefits when they need it. The same structure has “stands the test of time” with Social Security and Medicare, Ryan noted. Politically speaking, “it mattered a lot that it was set up as a social insurance program,” Caring Across Generations’ [Sarita] said Gupta.”

It sounded great – but too good to be true.

Now officials in Washington acknowledge that there are problems with the plan.

in Dec, Government Jay Inslee announced a delay at the start of the payroll tax so that the legislature could make changes when the new session meets on Jan. 10, in response to a multitude of complaints about the program, particularly because workers leaving the state or less than 10 years old are gone of retirement, would pay into the system without ever being able to benefit from it. The tax is now scheduled to start in April, but if House Bill 1732 is passed, the tax would be deferred until July 0, 2023. In addition, House Bill 1733 would allow people who work in Washington but live elsewhere, as well as temporary workers with non-immigrant visas, and disabled veterans and spouses of active enlisted military members, to opt out. However, none of these bills would address the problems caused by the eligibility requirements themselves.

But these eligibility requirements are there for a reason, to reduce costs with a smaller number of recipients, and to build up reserves that will be spent when current employees eventually retire. This is what the 2017 self-reported feasibility study:

“We estimate that the basic plan under Option 1 requires a payroll tax rate of 0.54% over the 75-year period from 2020 through 2094. We estimate a final tax rate of 0.94% to cover program costs after 2094 once the population dies. receiving benefits has stabilised. In other words, if all Washington residents were eligible, regardless of age and contribution history, the cost of the program would double, because that’s what will eventually happen when, 75 years into the future, all retirees have joined the program. paid. In practice, the actuaries consulted for this report expected payroll taxes to be increased well before the end of the 75-year period.

In addition, the $100 per day distribution is not expected to increase more than inflation, and may be reduced if deemed necessary for solvency purposes, according to the authorization legislation. And that $100 a day benefit is expected to be enough for the… average person receiving 96 hours of home care per month, based on Medicaid rates, for one year, according to the legislation’s findings.

You could argue that, imperfect as this legislation is, its flaws can be remedied in the future. But the law is a mishmash of features of programs from social support and social insurance, to his detriment. A requirement to have deposited into the system is characteristic of a Social Insurance program, and the 10-year contribution requirement is essentially the same as the requirement to qualify for Social Security retirement benefits. However, true Social Security programs pay out benefits to those who qualify regardless of where they live — again, once you’ve paid Social Security long enough to earn your benefit, you can collect it no matter where you live, even if you go to have moved abroad. In fact, even non-citizens who worked in the United States are tall enough to have accumulated sufficient Social Security credits, be able to receive benefits after returning to their home country. In addition, many social insurance schemes offer some sort of refund mechanism for employees who have not accumulated enough contribution years to qualify.

And this hybrid system is likely to prove politically unsustainable. Even if ordinary Washingtonians aren’t well versed in social insurance concepts and theories, it won’t be right with them that those who retire with 10 years of payroll taxes have “earned” their benefits, but those with 9 years haven’t, and likewise, that those who have “earned” benefits would lose those “earned” benefits just by leaving the state. Exactly how this will play out in the long run remains to be seen, but the new bills probably won’t be the end of the story.

In any case, these problems will not be easy to solve.

As always, you are invited to comment on JaneTheActuary.com!

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