In Washington state, a groundbreaking development in workers’ paychecks has taken place recently—a unique tax designed to support long-term care expenses.
This pioneering tax, the first of its kind in the United States, was established in 2019. However, it wasn’t until July of 2023 that workers began making payroll contributions under this program.
Unveiling the Washington Cares Payroll Tax
Here’s how it operates: Most workers in the state, unless they meet specific exemptions, are subject to a modest 0.58% tax on their wages. The funds collected from this tax are channeled into the Washington Cares program, a state fund aimed at providing financial assistance for long-term care costs, such as essential food and mobility needs.
Eligible workers can access the benefits of this program after contributing for ten years, though certain circumstances may enable them to accelerate these benefits. The maximum lifetime benefit available is $36,500, which will be adjusted for inflation. It’s important to note that currently, this benefit can only be utilized by individuals who remain in the state and is not transferable to other family members.
Addressing the Growing Need for Long-Term Care
The introduction of this tax stems from the fact that Washington’s senior population has doubled since 1980, and it is projected to double again by 2040. Unfortunately, many middle-class families have not adequately prepared financially for long-term care expenses. While higher-income families may have the means to afford such care or have planned for it through options like long-term care insurance, middle-class families who have not sought benefits previously may find themselves seeking support from family or depleting their savings to qualify for government assistance.
Understanding the Costs
According to HB 1087, the average cost for medical in-home care in 2019 was $24,000 per year, while nursing home care averaged $65,000 per year. However, other sources, such as long-term care provider Genworth, report higher figures. For instance, they mention that the national median cost for a private nursing home room was more than $100,000 per year and over $60,000 per year for a one-bedroom unit in assisted living. Home health aide costs were estimated at $5,148 per month or over $60,000 per year.
Certain taxpayers are exempt from the Washington Cares program, subject to approval. Exempt individuals include out-of-state workers, those temporarily working in Washington with a nonimmigrant visa, spouses or registered domestic partners of active-duty military, and veterans with a 70% or greater service-connected disability. Federal government employees, including active-duty military employees, are also ineligible for the program unless they work for a military department considered a Washington state employer.
While all non-exempt full-time, part-time, and temporary workers in Washington contribute to the program, self-employed workers must opt to participate. As of now, approximately 508,000 Washingtonians have chosen to opt-out of the program, considering the current working population estimated to be around 4.8 million.
Exploring Benefits Compared to Insurance
The average monthly contribution for Washington workers is approximately $24.21, totaling $291 per year. This presents a more cost-effective option compared to long-term care insurance, especially considering the declining number of companies offering such insurance in the state. Premiums and benefits for insurance can vary based on factors like age, health, and policy growth.
Addressing a Nationwide Concern
While Washington is taking the lead with the Washington Cares Payroll Tax, the need to fund long-term care is an issue faced by other states in the U.S. as well. The country already possesses the most significant long-term care market, comprising 2.04% of its GDP in 2017. Furthermore, projections indicate a substantial increase in Medicaid expenditures and enrollments, with Medicaid currently covering over half of all long-term care in the nation.
The Washington Cares Payroll Tax represents a significant step towards supporting long-term care needs for seniors. By contributing to this program, workers can ensure that they have access to essential financial support for long-term care costs in the future. Encouraging widespread participation will secure the program’s viability and availability for those who may need it most.