LTC Explained – Video 5

At-a-Glance Summary

(“Pending Payroll Tax for Long-Term Care” – Karp Loshak LTC Insurance Solutions)

Why States Are Eyeing a Tax
Medicaid budgets are shrinking while demand for long-term care keeps rising. To ease the burden, states—including New York—are considering a mandatory payroll deduction to fund a minimal benefit for residents who have neither saved nor qualified for private coverage.

How the Washington Model Works
The pioneer program (launched 2021) grants a lifetime benefit of $36K, indexed for inflation. It is financed by a 0.58% payroll tax with no salary cap—$588 a year on $100K of wages, $2,320 on $400K.

Why the State Benefit Falls Short
$36K barely pays for a few months of home care, and qualification is tougher than private insurance (three of six daily-living limitations, not two). The coverage is non-portable: move out of state and you lose it.

Opt-Out Strategy
Owning an IRS 7702B-compliant long-term-care policy before the opt-out deadline may be a strategic opportunity. When Washington announced its tax, insurers were flooded with applications and many temporarily stopped writing new business—leaving latecomers stuck with the levy.

Planning Moves to Make Now

  • Secure private LTC insurance early—carriers may tighten underwriting or pull products once legislation is imminent.
  • Younger W-2 workers and anyone with a family history of chronic illness should act sooner rather than later.
  • Consider 1035 exchanges to roll life-insurance cash values into hybrid LTC policies while time remains.

Key Takeaways
A state payroll tax buys only a token benefit and could cost high earners thousands each year. Locking in private, portable coverage ahead of any new tax preserves choice, delivers far richer protection, and ensures you won’t be scrambling for a policy after the carrier window slams shut.