MW Washington state voters may have just saved our long-term-care future
By Beth Pinsker
After a ballot initiative fails, an experimental state program will continue
Deep in the 2024 election results, there's a failed ballot initiative in the state of Washington that may be only a footnote to the major changes under way - but it's one that could end up having a great impact well beyond one state and even one generation.
The initiative that was voted down by state residents aimed to make WA Cares, a state-mandated long-term-care insurance program for residents, voluntary instead of mandatory.
Workers in Washington started contributing a 0.58% payroll tax to the program in 2023. After contributing for 10 years (or in some cases for a shorter period), they can claim a benefit if they need care when they age. People can apply for benefits starting in July 2026 and can claim up to $36,500, an amount that will be indexed for inflation. Several exemptions apply, including for workers who live in other states and for spouses of active-duty military members. Some older workers - those born before 1968 - have "lower contribution requirements and benefits," according to the program's website.
By making the program voluntary, the ballot initiative likely would have doomed WA Cares to the same fate as traditional long-term-care insurance in the U.S., which has never attracted the participation of more than 10% of the population, even though it's expected that 70% of Americans will need the service at some point in their lives. The alternative for most people is Medicaid, which currently pays for the long-term care of more than half of those in nursing homes and is jointly funded by the government and the states, also through taxes, of course.
We usually think of insurance as being for low-probability but high-cost events, like your house burning down. "But long-term care is not a low-probability event," said Wade Pfau, a retirement expert and author of "The Retirement Planning Guidebook." That has always left it caught in vicious cycle. There are sure to be high claims costs, which insurance companies have to pass along to policy holders in order to remain solvent, but then few people sign on because it's so expensive, which raises the costs more.
"Premiums have to be higher because the odds of having a claim are higher, and that has unraveled the system," Pfau explained.
That's where Washington state comes in. A mandatory program, akin to requiring car owners to carry insurance, broadens what's known as the risk pool - the number of people who are grouped together as a shared risk. If all the workers in the state are contributing, the amount of money for claims will be higher, and healthier people will balance out those who are sicker.
"If you could force everyone to share the risk, you don't have the breakdown of the insurance industry. That could help lower premiums," said Pfau. Without the mandate, low-risk healthy people leave the pool, along with higher earners who can fund their own long-term care.
Innovation takes time
WA Cares is still a work in progress, but at least it's the start of a conversation, said Carroll Golden, a specialist in long-term care and the author of several books on caregiving. "It's a topic that obviously needs exposure," she said. "And having enough people in Washington say that they don't think they want to make this voluntary kind of validates that."
Already, insurance carriers are working to develop programs to meet the standards in Washington, and that is trickling down to private policies for individuals in other states and to group workplace insurance policies. As analysts see what pricing is affordable to the consumer and sustainable for claims, they can design more policies, like the hybrid life insurance and annuity products that are more available now, which combine long-term care with other financial contracts, including death benefits.
There are a lot of details still to consider. And for Washington, there's a lot left to learn, such as whether $36,500 is enough to make a difference, whether there should be more exceptions and whether private insurance should count as coverage.
"All that is noise," said Golden. "But in some sense, noise in the industry is what gets people to be more aware that this is something they need to investigate. And that's probably a good thing."
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-Beth Pinsker
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November 06, 2024 15:41 ET (20:41 GMT)
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