Who’s Next for State Mandated LTC Payroll Taxes?

LTC Payroll Tax – Who’s Next?
We are all concerned about the exposure of living longer.  The longer we live, the more likely we might need chronic care.  States are also very concerned about this because most people without insurance or financial means end up using state Medicaid resources.  This is causing more states to consider the implementation of a LTC payroll tax.

The state of Washington was the first to roll out their program in 2021, and 14 states are looking to follow suit.  WA state’s 0.58% payroll tax is expected to start in July 2023.  They are still scrambling to figure out all the details and issues that have risen regarding fairness and flexibility. California and New York are high on the list of states next to act and 12 more in the consideration/proposal stages (AK, CO, HI, IL, MI, MO, MN, OR, PA, NC, NM & UT).  Below is a short video discussing more of the details. 

State LTC Initiatives – What it means for advisors & clients

What should you be telling your clients? 
Any new payroll tax will certainly affect your younger clients with the highest incomes the most.  I suggest having a proactive discussion; add information to your newsletter or other marketing sources, especially if most of your clients live in an affected state.  Stay abreast of any legislation in the states you work in. We will continue to send updates but, I suspect the way things are heading, we will see states act and implement with no time to react.    
The Washington program provided residents a window to place coverage and only allowed IRC7702 filed products (a qualified long-term care insurance contract) to exempt residents from the program.  These plans included:

  • Traditional long-term care insurance
  • Hybrid insurance
  • Life with a LTC Rider (chronic riders were not allowed)

The biggest concern right now is what other states will do.  What products will they allow for exemption and when will your coverage need to be in place?  The “window” to place coverage provided by the Washington program put a huge stress on the insurance industry and most reports on the topic inform us that states will not provide a window, you’ll need coverage in place when they pass the law for exemption.

New York’s proposed regulation currently appears to only allow Traditional LTC insurance to exempt residents from their program.  The challenge we have is that there are very few carriers remaining in the traditional marketplace, especially in New York.   Launch the below link for our overview of NY’s proposed legislation.

NY LTC Trust Act

A pricing grid
Since we are not sure which products will qualify, perhaps your clients consider purchasing traditional long-term care insurance, a 7702 registered hybrid or life policy with a LTC rider.  For younger clients, they may want to consider hedging and buying a little of both.  The idea here would be to keep the life policy if it qualifies and drop the traditional LTCi plan so they are spending premiums on a death benefit that will ultimately pay off if whether they need care or not. 

LTCi Sample Pricing – Most States, CA & NY

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