Email FacebookTwitterMenu burgerClose thin

Has This State Found the Solution to America’s Long-Term Care Problem?

The Washington state capitol in Olympia. The state has create a long-term care insurance program funded by a payroll tax.

Has Washington State found the solution to the difficulty retirees face in covering their long-term care costs?

Starting Jan. 1, 2022, most employees in the state will begin paying a mandatory payroll tax to fund a statewide long-term care insurance program similar to Social Security. Known as the WA Cares Fund, the plan will begin paying out benefits of up to $36,500 per year for long-term care by 2025. This is the first plan of this kind in the U.S.

As the cost of care rises throughout the U.S., the program in Washington is designed to help the state’s aging population pay for specific services, like home health aides and assisted living. Whether you live in Washington or elsewhere, a financial advisor can help you plan for your long-term care needs.

How Does the WA Cares Fund Work?

Washington state has created the nation's first statewide long-term care insurance program funded by a payroll tax on practically all workers.

The WA Cares Fund was created through the 2019 Long Term Care Trust Act. By 2025, eligible beneficiaries will start collecting up to $36,500 each year (adjusted annually for inflation) for qualified long-term care expenses. The program will be funded entirely through a payroll tax of up to $0.58 for every $100 of earnings. For example, a worker making $50,000 per year will pay $290 into the program each year. Every employee will contribute to the program, while self-employed workers can opt into the trust.

Not all workers are obligated to contribute to the program, though. Those who already have private long-term care insurance or sign up for a policy by Nov. 1 will be exempt from the tax. However, exemptions are permanent, meaning a person who opts out cannot opt back in later. The state received 95,000 applications to opt out of the program in just the first week that workers were eligible to request an exemption, reported.

To become eligible for benefits, a person must contribute to the fund for at least 10 years (without a break of five years or more) or have contributed to it three of the past six years at the time they apply for their benefit.

Benefits can be used to pay for the following services:

  • Professional personal care provided at home, an assisted living facility, an adult family home or a nursing home
  • Adaptive equipment and technology like hearing devices and medication reminder devices
  • Home safety evaluations
  • Training and support for paid and unpaid family members who provide care
  • Home-delivered meals
  • Care transition coordination
  • Memory care
  • Environmental modifications like wheelchair ramps
  • Personal emergency response system
  • Respite for family caregivers
  • Transportation
  • Dementia supports
  • Education and consultation

The plan is expected to save the state $3.9 billion in Medicaid costs, according to The Seattle Times. However, critics have noted that the annual benefits will cover only a fraction of a person’s long-term care needs. Others have questioned why people who leave the state after paying into the program are disqualified from receiving benefits. A bipartisan group of senators sent a letter to the Gov. Jay Inslee, a Democrat, requesting that he suspend the collection of the tax.

Cost of Long-Term Care Rising

Washington state has created the nation's first statewide long-term care insurance program funded by a payroll tax on practically all workers.

The groundbreaking program also comes at a time when long-term care costs are rising throughout the country. The national median cost of a home health aide rose 4.35% in 2020 to $54,912 per year, according to Genworth, an insurance company specializing in long-term care policies, mortgage insurance and annuities. Meanwhile, the annual median cost of an assisted living facility increased more than 6% in 2020, reaching $51,600.

A 2020 Genworth study found that labor shortages and growing demand for long-term care are among the factors driving these price increases.

Long-term care is even more expensive in Washington, where the percentage of residents ages 65 and over grew from 12.3% in 2010 to 16.3% in 2019.

Here are the median monthly costs of various long-term care services in Washington, according to Genworth:

  • Homemaker services: $5,941
  • Home health aide: $6,031
  • Assisted living facility: $5,750
  • Semi-private room in a nursing home: $9,581
  • Private room in a nursing home: $10,950

And if you think long-term care is only for the most vulnerable of retirees, you’d be wrong. While approximately one in five retirees won’t need any support as they age, about one quarter will have “severe needs,” the Center for Retirement Research at Boston College found. The remaining retirees will face “low to moderate” needs.

Bottom Line

The WA Cares Fund in Washington state is a first-in-the-nation insurance program for long-term care. People who work in the state will fund the program through a payroll tax of $0.58 on every $100 of income. As a result, a person with an annual salary of $50,000 per year will pay $290 into the program. Beneficiaries will receive up to $36,500 per year to pay for qualified services, including home health aides, assisted living and other needs. Critics say the plan is too expensive, won’t cover most people’s needs and is too restrictive on people who leave the state. However, as long-term care costs continue to rise across the country, demand remains high.

Long-Term Care Planning Tips

  • Companies like Nationwide, AARP, New York Life and Genworth all offer long-term care insurance policies. To help you sort through your options for long-term care insurance, SmartAsset has reviews of these companies and others.
  • If you want help with long-term care and other financial planning questions, consider working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: ©, ©, ©