Geekwire ran an item earlier this week about the state’s impending payroll tax to fund long-term care (LTC) benefits. The program was enacted in 2019, the tax will begin to be collected Jan. 1, 2022, and benefits will be available beginning Jan. 1, 2025. We wrote about the program in a 2019 policy brief.

The Geekwire story covers the basics of the program (and helpfully provides some sample costs of private LTC insurance). However, I think it downplays the importance of a Nov. 1 deadline:

Technically, you have until Nov. 1, 2021 to decide if you want to go private or simply accept the state tax. You don’t have to do anything if you want to accept the state tax, and your employer will collect it. But if you want a private policy, remember that getting one isn’t an immediate process. Your potential insurer will screen you to determine your rate, then bill you, and then provide the required proof of coverage. That takes time. Experts suggest making a decision by late July or early August. But while you must make your decision by Nov. 1, you don’t have to provide proof until the end of December. So you have a small grace period.

As originally passed, the LTC program allowed individuals to opt out of the program (at any time) if they have private LTC insurance. Legislation adopted earlier this year restricts that exemption to individuals who have purchased private LTC insurance by Nov. 1, 2021. Then, they must apply to the Employment Security Department (ESD) for an exemption. ESD will accept applications from Oct. 1, 2021 through Dec. 31, 2022. But even though applications for exemption are accepted through December 2022, the insurance must still have been purchased by Nov. 1, 2021. Also, if exemptions are granted, there will be no refunds of payroll taxes paid before the exemption was approved.

Additionally, the story doesn’t get into the fact that the tax rate is not set in stone. It will be 0.58% for the first two years, but after that the tax rate will be set by the Pension Funding Council, at the “lowest amount necessary to maintain the actuarial solvency of the long-term services and supports trust account.” This will likely be higher than 0.58% because last year voters rejected ESJR 8212.

As we explained in our policy brief on the proposed constitutional amendment, ESJR 8212 would have allowed funds in the long-term services and supports trust account to be invested in stocks. This would have meant higher rates of return to the account over time, which in turn would have allowed for lower LTC payroll tax rates. Instead, according to the Long-Term Services and Supports Trust Commission (LTSSTC), the payroll tax rate might now need to increase to 0.66% to maintain long run solvency. (Legislators introduced SJR 8200 this year, to try again to amend the constitution to allow the funds to be invested, but the proposal was not adopted.)

Further, as I noted earlier this year, the LTSSTC actuarial analysis found that “if the top 5% of all wage earners opt-out, the level of premium assessment required is increased from 0.66% to 0.68%.”