MishTalk by Mish
Health Care Partnership
A concerned reader from Washington asked me to discuss a new law in Washington state, the first in the nation to force people to buy long-term care insurance.
No matter what your age, your bill is $0.58 per $1,000 gross income with no caps.
The state calls this forced setup a “Health Care Partnership”
Features
- Starting Jan 1, 2022: Initially, the tax will be 0.58% of employees’ wages. Beginning January 1, 2024, and every 2 years thereafter, the tax will be set at a rate (no greater than 0.58%) necessary to maintain the solvency of the Program.
- Taxed on Everything: The tax applies to all wages and remuneration, including salary and hourly wages, stock-based compensation, commissions, bonuses, holiday pay, most paid time off, and severance pay.
- No Cap: There is no cap on the amount of wages in which the tax applies.
- Employers Must Collect: Employers are not required to contribute to the Program, though they are required to collect premiums from employees and remit them to Washington State ESD.
- Exempt Unions: Employees subject to a collective bargaining agreement in existence on October 19, 2017
- Self-Employed: Self-employed individuals are not subject to the tax.
Benefits
- Maximum benefit of $100 a day
- Maximum lifetime benefit of $36,500
- No benefits until January 2025
- If you are currently in need of care, you cannot join the program. Too bad.
Eligibility Requirements
- You must have paid into the system for a total of 10 years without an interruption of 5 or more consecutive years AND worked at least 500 hours during each of the 10 years; or
- You must have paid into the system for 3 years within the last 6 years from the date they apply for benefits AND worked at least 500 hours during each of the 3 years.
Opting Out Requirements
- You have a one time chance to opt out. To opt out you have to file a waiver request between October 1st, 2021 and December 31st, 2022.
- You must have other long-term care insurance.
Special Screw Jobs
- In general, the younger you are, the more you are screwed.
- If you are high school or younger, you have no chance ever to opt out unless your parents decide to buy long-term policies for you right now.
- If you are self employed now but later work for someone else, you are automatically opted in unless you opt out now.
- There is no explicit requirement for employers to notify employees of the program.
- Although you can opt out between October 1st, 2021 and December 31st, 2022, you must have purchased other long-term care insurance before November 1, 2021.
- Employers cannot apply for an exemption on behalf of employees, even if they offer long-term care insurance.
- If an exempted employee does not notify their employer of the exemption and the employer continues to take payroll deductions, the employee will not be entitled to any refund of payroll deductions taken before the employer is notified.
- If you move to another state, well too bad, kiss those premiums goodbye.
- If you retire before you meet the eligibility requirements then 100% of your payments will also be a waste.
Is This Legal Under Federal Law?
A question still remains whether the Program is preempted by The Employee Retirement Income Security Act (ERISA), a federal law that sets rules and standards for plans established or maintained by employers for the purpose of providing medical, surgical, or hospital benefits in the event of sickness, accident, disability, death, or unemployment. Under the doctrine of preemption, when a state law interferes or conflicts with a federal law, the federal law displaces the state law.
Some have argued that the Program conflicts with ERISA because it applies to the same type of plans that the ERISA governs (e.g., employer-maintained long-term care insurance that provides reimbursements for medical benefits in the event of sickness or disability). The Program is “employer-maintained” because employers are required to take payroll deductions and track exemptions. Further, the Program does not fall under an ERISA-exempted voluntary “payroll practice” because it requires participation by most employees.
Since the Program is arguably preempted by ERISA, parties may bring suit in federal court seeking to invalidate the Program.
Legal Opinion
Davis Wright Tremaine LLP provided further legal analysis in Washington State’s New Long-Term Care Statute Is a Mess – Can ERISA Preemption Provide the Cleanup?
The LTC Act cannot be exempt as a payroll practice because the ERISA exemption requires employee participation to be voluntary and coverage under the LTC Act is mandatory, with the exception of a very limited one-time individual exemption.
The LTC Act mandates a benefit that is arguably preempted by ERISA. As such, employers that desire to challenge the LTC Act should consider filing a declaratory action in federal court to challenge the statute on the grounds of ERISA preemption.
Other than the burden of collection, it is not the employers who are impacted. It is employees who should bring the challenge.
Brief Synopsis
Washington’s Public Private partnership is guaranteed to screw you if you are too old, too young, make too much money, move out of the state, or need care too fast.
And it’s likely not even legal but that will take a court challenge.
Finally, nobody in their right mind believes the initial tax of $0.58 per thousand will even be sufficient.
Hooray, There Is a Way Out!
This is not a recommendation, nor advice. Everyone’s situation is different.
But in general the younger you, the more you make, or the more likely it is for you to ever move out of the state, the more you should carefully think about things.
If you are older, also consider whether it is even possible for you to work long enough to be eligible.
And if you make 1,000,000 in total compensation (or ever do), you will pay $5,800 a year for a maximum lifetime benefit of $36,500.
This is certainly crazy.
If you do decide to opt out, I do not recommend lying as they will likely catch you. But the law left a loophole:
If you want out and do not have a long-term policy now, then get a policy that is EFFECTIVE before November 1, file the waiver on time, then cancel that policy ASAP in 2022.
I believe the law says “purchased” not “effective” but I did not go over the complete bill.
Supposedly, opting out is “permanent” and cannot be undone. That is arguably the single best feature of the entire program.
But if too many do it, they may change the law. And despite the provision the tax will never exceed 0.58%, it would be crazy to believe that.
Hopefully, the courts strike down this monstrosity. But don’t count on it. For now anyway, if you want out, there is a legal way.
Mish
