A new, mandatory tax which would provide minimal long-term care benefits for California’s citizens has now been recommended by the California Task Force for Long Term Care.
Here’s the brief background. The California Task Force for Long-Term Care was established “to explore the feasibility of developing and implementing a culturally competent statewide insurance program for long-term care services and supports.” The Task force has a committee of fifteen members, consisting mostly of California Department of Insurance employees and representatives of caregiving organizations.
The Task Force has met many times over the past year and has submitted its recommendations to the Legislature and the Governor. It has tried to improve the imperfections of the recently enacted Cares Act from the State of Washington. The Cares Act will be funded beginning in July through a mandatory payroll tax of .58 %. It will give workers a lifetime benefit of $ 36,500, adjusted annually by Washington’s Consumer Price Index. Other states, including the large ones of New York and Pennsylvania, are also considering adapting the Washington Cares Act.
The concept here is to provide a small long-term care benefit and to encourage citizens to buy wrap-around private long-term care insurance. This would protect citizens and save the state many millions of future Medi-Cal dollars.
In my view, this is a noble effort to provide a public program to solve the pressing and growing long-term care conundrum. The Committee meetings showed how pervasive and threatening long-term care costs are and are growing. But the more one examines the details of a public program, the more complex the issues.
The California Task Force has decided to provide the Legislature with five recommended designs, not just one, which are widely different from each other, both in cost and in benefit structure. It has hired the actuarial firm of Oliver Wyman to provide the cost analysis no later than December 31, 2023.
The Committee favored the most expensive designs, which could increase payroll or income taxes by as much as 20 % over the huge 9.83 % that many Californians currently pay. It hoped to get employers to pay up to half the cost, which is unlikely in my opinion. In the end, there is going to have to be a more realistic cost proposal for the Legislature to consider.
Washington State had a very limited period for citizens to buy private long-term care insurance and by doing so, opt-out of the program. One seventh of the eligible citizens did so. The Task Force is recommending a similar program in California. Individuals who own eligible private insurance before the program effective date would be permitted to opt-out of the program.
If this recommendation becomes law, as was the case in Washington, there will be a stampede in California in 2023 to buy private long-term care insurance, and by doing so, probably avoid the tax.
As long-term care insurance specialists, we are gearing up to keep abreast of developments and provide expert advice. For many, the time to act is now.
By Louis H. Brownstone
