Lawmakers have passed legislation delaying the implementation of Washington state's novel long term care premium tax until July 2023 — almost 18 months. Washington Governor Inslee is expected to sign the new legislation tomorrow, January 28, 2022. Employers who have already withheld the tax will need to refund it to their employees within 120 days. Those about to run their payroll should take steps to avoid (further) withholding of the tax.
For those just coming to this party, here is a summary of how we got here.
We have previously written about Washington state's novel approach to dealing with long term care, here and here. In a nutshell, Washington state was supposed to impose a 0.58 percent tax on all employee compensation, beginning January 1, 2022, to fund the creation of a trust fund that would pay out long term care benefits under a program known as WA Cares.
Our firm (and others) noted several serious flaws in the design of the program, some from the original 2019 legislation and some flaws from as recent as last May, including:
- Many employees paying into the program would not work enough
years to vest in the benefits;
- Employees residing outside of Washington state, but
working within the state, were subject to the tax even though
benefits were only available to cover expenses for in-state
services;
- The opt-out period for those with commercial long term care
policies was very short and didn't require maintenance of
private coverage beyond the opt-out window; and
- Coverage limits were way too low to be really meaningful to those needing them.
Nevertheless, the premium tax was substantially revised last Spring — in ways that either exacerbated, or failed to address, these problems, and was scheduled to go into effect on January 1 of this year. As the effective date approached, the outcry of complaints — and litigation — began to grow. Further, the law of unintended consequences meant that (virtually?) all of the private long term care insurance providers stopped writing pure long term care policies for Washington state residents in part out of fear that (i) their insureds would simply cancel after one year, or (ii) potential purchasers might conclude that private insurance wasn't necessary because of the state-mandated plan.
In late December, Governor Inslee announced that he would seek a material delay in the plan, and even suggested that employers need not begin withholding the following week. Of course, the Governor could not repeal or delay a law by press release, so lawyers (including those for the state) generally recommended that employers begin withholding on January 1, notwithstanding the promises from the Governor, and legislative leadership, that the tax would be delayed.
As noted, the Governor should sign the "delay legislation" into law in the next few days. Companion legislation fixes some of the problems noted above (such as partial vesting for those near retirement), but retains others (such as only allowing benefits to the extent spent in Washington), which raises the obvious question of whether the retained provisions are considered features or bugs. The 18-month delay should provide ample time to re-examine the law with the goal of enabling a less contentious implementation — and possibly avoid the loud chorus (mostly from the Republican side of the aisle) for complete repeal. We are not betting who will ultimately prevail, but we are telling individual clients that, if they obtained private LTC insurance as a means to opt-out of the state program, then they would be well served to maintain those policies — at least until the fog dissipates.
Employers who collected premiums will be required under this legislation to refund those premiums to employees within 120 days of the collection. If premiums were collected but not yet remitted to the Employment Security Department (ESD), the employer is required to refund the premiums to the employee. If remitted to ESD, they must be refunded to the employer within 120 days of the collection of the premiums, and the employer must then return any premiums collected from the employee.
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