The Forefront blog of Health Affairs has published two counter-takes on WA Cares, Washington’s delayed long-term care program. One considers WA Cares a failure, and the other (while acknowledging some problems) considers WA Cares a model. I wanted to add some context for both. (Technically, WA Cares is the long-term services and supports trust [LTSST] program.)

First, Mark J. Warshawsky of the American Enterprise Institute wrote in February that WA Cares is “deeply unpopular, poorly designed, unstable, insolvent ab initio, perhaps illegal, and, without major changes, failed.”

It is true that the program is already expected to be insolvent. By statute, the initial premium rate is set at 0.58%. In 2020 (after initial enactment), Milliman estimated that the trust would be depleted by 2076 if the premium rate remains at 0.58%. To be solvent over the entire 75-year actuarial window, Milliman estimated a 0.66% rate would be required. (That estimate doesn’t incorporate changes to the program since 2020, so 0.66% is likely a low estimate.)

Warshawsky states that the premium tax rate “cannot be increased.” By law (as amended by SHB 1732 this year), beginning Jan. 1, 2026, the premium rate will be set by the Pension Funding Council “at a rate no greater than 0.58%” and also “at the lowest amount necessary to maintain the actuarial solvency” of the LTSST account. As we noted in 2019, “those two requirements could conceivably be at odds.” Seemingly recognizing this potential contradiction, the statute also states,

If the premiums established in this section are increased, the legislature shall notify each qualified individual by mail that the person’s premiums have been increased, describe the reason for increasing the premiums, and describe the plan for restoring the funds so that premiums are returned to fifty-eight hundredths of one percent of the individual’s wages.

(Of course, nothing prevents the Legislature from changing the statute to increase the tax rate.)

When Warshawsky says that WA Cares is “perhaps illegal,” he is referring to the class action lawsuit that was filed last year in federal court. A federal judge dismissed the case in April.

Warshawsky also writes that Washington “had chosen a low-risk strategy of investing in US Treasury securities.” This wasn’t a choice—it is required by the state constitution. A proposed constitutional amendment that would have allowed the state to invest the LTSST money in higher earning investments like stocks was rejected by voters in 2020. We have argued that if Washington moves forward with the LTSST program, it should try again to pass the constitutional amendment, which would improve the solvency of the fund and help to prevent payroll tax increases.

Second, on June 16, Henry J. Aaron of the Brookings Institution wrote that, to the contrary, the program is not a failure.

He downplays the problem of adverse selection. (If too many young people and high earners choose to opt out of the state program, then the program would not have enough of a tax base with which to fund the program for others.) About the flood of exemption requests that came in last year, he writes, “actuarial studies prepared by Milliman for the Washington State legislature incorporated the effects of adverse selection.” But, as I wrote yesterday, the actual number of people opting out exceeded the base case that was estimated in 2020.

Aaron notes the estimate that the account will be depleted in 2076 and argues that the savings to the Medicaid program should be factored in. He figures that if you offset the negative balance in the trust with the Medicaid savings, the balance is less negative over time. If you are considering the total cost of long-term care in Washington (regardless of who pays for it), then netting the savings to Medicaid from the cost of the LTSST program makes sense. (Although, as I wrote yesterday, Medicaid savings are small compared to the payroll taxes paid.) But it seems to me to be irrelevant to the question of whether the LTSST program itself is solvent (that is, whether the payroll taxes and investments earnings dedicated to the LTSST account are sufficient to fund LTSST program costs).

Ultimately, Aaron writes,

It appears that the current 0.58 percent tax rate may be insufficient to pay for currently promised benefits, a situation that would increase the likelihood that unfriendly future state administrations might terminate the program.

One point is clear. The decision by the Washington legislature to delay implementation of WA Cares was very much not a confession of failure. Rather, it was a prudent action to give time to implement modifications to correct genuine problems in the original legislation.

Certainly it was the right decision not to begin the program on Jan. 1, 2022, as originally planned. Although Aaron points to WA Cares as a model for other states, he acknowledges that the 0.58% tax rate is too low to fund the program. Meanwhile, the corrections the Legislature has already made will further increase the necessary tax rate.

Going forward, the 2022 supplemental operating budget requires the LTSST Commission to submit recommendations by Jan. 1, 2023 on options:

• To allow people who vest in the program but then move out of state to access benefits,
• To require ongoing verification of maintenance of private insurance for people who opted out of the LTSST program, and
• To provide exempt workers an opportunity to reenter the program.

In our 2021 report on the program, we wrote that it’s not clear the state should remain in this business, as “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.” If the Legislature doesn’t take action next session, the payroll tax will go into effect July 1, 2023.