Key dates for Washington’s long-term care insurance program—and its accompanying payroll tax—are fast approaching. Beginning Jan. 1, 2022, a payroll tax of 0.58% will be levied on every employee’s wages. The tax is expected to generate revenues of more than $1 billion a year. Long-term services and supports trust (LTSST) benefits will then be available beginning Jan. 1, 2025.

One purpose for the new program is to reduce Medicaid spending. In 2021–23, the state Legislature appropriated $7.911 billion from all funds for long-term care, of which 42.4% is from state funds. Spending on long-term care is 6.4% of total operating budget spending from all funds; it is 5.1% of total operating budget spending from state funds. Saving state funds is a worthy goal, but the projected long-term Medicaid savings ($3.742 billion through 2052) are miniscule compared to state spending on long-term care and to the payroll taxes that will be collected.

The LTSST program will be mandatory for all workers. However, the statute allows people who have purchased private long-term care insurance by Nov. 1, 2021 to opt out of the state plan. The approaching deadline to opt out of the state program and permanently avoid the payroll tax has caused a rush to the private market this year. Final numbers will not be available until the state Employment Security Department processes all applications. If the number of people who opt out is higher than anticipated when setting the initial premium rate, it could have a detrimental effect on the actuarial solvency of the LTSST.

As it is, the LTSST is currently projected to be fully funded only through 2075. This is within the 75-year window that is typically used to evaluate trust fund solvency. The negative projected reserve could be eliminated by reducing benefits by 9.5% in 2025 or increasing premiums to 0.64% in 2022. These projections assume that the LTSST funds cannot be invested in stocks and bonds, pursuant to the state constitution. If a constitutional amendment eventually passes to allow such investment, the program would be solvent throughout the 75-year window with the 0.58% rate.

The overall cost of the program may be too high for the level of benefits provided, it excludes vested individuals who move away, and the fund is already expected to be insolvent within 75 years.

Given all this, it’s not clear the state should stay in this business. But if it does, the Legislature and voters should approve a constitutional amendment allowing the LTSST funds to be invested in stocks. This would have a major positive impact on solvency and would help prevent future tax increases.

Read the report here.