As we noted in our 2021 report on the state’s long-term care program, it looks like the 0.58% payroll tax rate for the program will not be high enough to maintain actuarial solvency. By statute, the premium rate for the long-terms services and supports trust (LTSST) program (also known as WA Cares) cannot exceed 0.58%. At the same time, the premium rate must be set “at the lowest amount necessary to maintain the actuarial solvency of the long-term services and supports trust account.” That “lowest amount necessary” is getting to be considerably higher than 0.58%.

A 2020 study by Milliman estimated that the statutory 0.58% premium rate would be insufficient to maintain solvency through 2096 (the end of the 75-year actuarial window). Instead, the analysis estimated that a premium rate of 0.66% would be required. Earlier this year, the Legislature delayed implementation of the program by 18 months. Now, premiums will be assessed beginning July 1, 2023, and benefits will be payable beginning July 1, 2026. In addition to the delay, the Legislature made some changes: near retirees will be eligible for prorated benefits and some groups of people will be eligible for exemptions. These eligibility changes are estimated to add 0.03%–0.06% to the necessary premium (on net; the estimates were made separately and so don’t account for any interactions between the policies).

Meanwhile, under 2021 legislation, Washingtonians who had purchased private long-term care insurance before Nov. 1, 2021 may request exemptions from the LTSST program. There was a flurry of interest last year in these exemptions.

In April 2022, Milliman provided an updated estimate of the base plan in the 2020 study to reflect actual opt-out data. (This estimate does not take into account the effects of 2022 legislation.) As of March 3, 2022, about 473,000 people had opted out. The 2020 base plan had expected just 103,000 to do so. Given the opt-out data, Milliman estimates that the impact to the premium rate is 0.036% but could be as high as 0.061%.

According to Milliman, these premium estimates are higher than projected in the 2020 report because “the population opting out is younger than previously modeled, and the population opting out has higher wages on average than previously modeled.”

In the 2020 base plan, Milliman had estimated that 16.5% of the opt-outs would be under the age of 35. Using actual opt-out data, 32.3% of the opt-outs are under 35. The average age of opt-outs in the 2020 base plan was 46.4; it is 41.2 using actual data.

Additionally, Milliman estimates that the average annual wage in 2021 of the people who opted out is $187,545. (The average annual wage in the state in 2021 was $82,508.)

Moreover, “the average of wages removed is more concentrated around younger ages than modeled.” For example, in the 2020 base plan, Milliman had assumed that opt-outs aged 25 to 34 would account for 14% of total 2022 wages. Using actual data, opt-outs aged 25 to 34 account for 25% of total wages.

Thus, the characteristics of the people who have opted out have a negative effect on solvency. Younger people will pay into the system longer and higher earners will pay more into the system—but that doesn’t mean they will claim more benefits than others. (The same maximum lifetime benefit applies to everyone who pays into the system.)

At an April meeting of the Long-Term Services and Supports Trust Commission, the Office of the State Actuary said that this fall they will have an updated baseline actuarial analysis that incorporates the changes made to the program this year and the actual opt-out data. That should give a better, more comprehensive indication of what the necessary premium rate will be.