Long-term care changes in a New York minute 

If you’re dizzy from the rate of change in the Long-Term Care (LTC) insurance marketplace, you’re not alone. It’s been an interesting couple of years, ever since Washington passed the first mandatory, payroll tax-funded LTC plan. Now, another round of legislative swirl is pushing the phonetic pace, as New York recently announced its take on a state-funded LTC plan. While the situation remains fluid, here are the key developments to know, as well as why private insured LTC products carry value — regardless of whatever happens on a legislative level.

LTC legislative state of the union

Keeping track of state and federal LTC activity is a full-time job. That said, this quick breakdown shows what’s in progress as of today:

• Washington — Washington Cares Fund initially targeted its mandatory LTC plan to start January 1, 2022; implementation delayed until July 2023 (allowed payroll tax opt out for those who purchased private LTC prior to 11/1/2021). It’s estimated more than 450,000 people (Seattle Times, January 2022) applied for payroll-tax opt outs, with additional opt out applications allowed through 12/31/2022.
• Pennsylvania — In an unbelievably fast move, Pennsylvania proposed LTC legislation 8/22/2022 that creates a state LTC plan remarkably similar to the Washington Cares Act and contains similar gaps (unlike New York’s proposal). The Pennsylvania LTC imposes a payroll tax of 0.58% to shift Medicaid liability to a payroll base. The bill has a proposed 1/1/2023 effective date and allows an opt out with private LTC coverage. This creates an incredibly difficult situation for Pennsylvania employees because it only allows a 4-month window to obtain private LTC coverage inforce. The bill doesn’t fully define “private LTC coverage,” leaving the market susceptible to confusion. More details to come as developments continue. 
• California — California approved funding to explore a statewide LTC program. While an outside consultant was hired and committee sessions are taking place, the plan structure is yet to be finalized (expecting either discounted payroll tax or full payroll tax opt out for those with private LTC).  Their recommendations include options for a full opt out for those with private LTC on the date the law is enacted, leaving those who purchase private LTC after the enactment date with a tax differential (lower tax for those with private LTC).  Those wanting to lock in savings should buy private LTC now. They need to finalize many aspects of their program structure but are recommending an option to require employers and their employees to split the payroll tax. More to come as this develops.
• Minnesota — Created an annual tax credit up to $100 per person, $200 per couple for those with private LTC, effective 12/29/2021. 
• Other — Additional states considering enacting LTC legislation: Alaska, Colorado, Hawaii, Illinois, Maine, Michigan, Missouri, Oregon, North Carolina and Utah, plus numerous pieces proposed at the federal level.

New York LTC plan structure

Set for review when the New York legislature resumes early fall, the New York Trust Act currently states (June 2022):

Beginning January 1, 2024, any employee in New York must pay a to-be-determined percentage of annual wages into a state LTC fund through payroll taxes. The proposal drafted duplicates the Washington LTC plan, but makes some significant changes from that original legislation, including:

• No New York residency requirement — All employees working 500+ hours per year in New York (including those living in the Tristate area) are impacted, building the case for a potentially more frenzied LTC market rush than what was experienced in Washington. While complex, how employers categorize employee records (designated to a specific office location) could determine which employees are specifically facing LTC payroll tax implications.
• Current wording potentially allows no residency requirement at time of claim — Meaning those who move out of state could still receive the benefit.
• Requirement of ongoing employee eligibility audits — The New York plan requires ongoing employee eligibility audits and resumption of payroll tax deduction, if employee drops coverage related to their exemption. Employees must notify the plan and their employer of eligibility changes; their failure to pay tax will be subject to penalties and potential fines. Employers will not be held responsible for employee failure to provide notice to their employer.
• Collectively bargained employees are not temporarily exempt — This differs from Washington’s take, as they gave these employees a break until contract renegotiations.
• The payroll may tax unfairly impacts high earners — If similar to Washington, the tax will be a flat, uncapped tax with a broad definition of income. 

Like Washington, current proposed legislation allows an opt out provision; however, the opt out qualifications and deadline are not yet known. One thing is certain: history is bound to repeat itself. With a complex and limited carrier landscape in New York, the LTC market is bracing for another massive rush with overrun capacity — much worse than what was experienced in Washington.  

More LTC legislation will continue, it’s just a matter of when. Once one state gets it “right,” other states will follow suit in quick succession. Even with uncertainty around which state will leapfrog to the front of the line, now is the time to evaluate available LTC options and develop plans of action. Those in the Tristate area and California need to take notice and act quickly.

Mercer Voluntary Benefits has a long-term commitment and focus on leading LTC strategy — helping make sense of marketplace trends and legislation. Led by Steve Ginsburg, our Voluntary Benefits product expert with more than 30 years of industry experience, we are well positioned to help navigate these rapid, fluid changes, keeping you apprised of the latest information to support your employees through dynamic legislative activity.