California Long Term Care
Washington was the first state to require long-term care coverage for most residents, either via payroll tax supported public program, or private insurance acquired in advance. Several states are evaluating similar tax-payer funded options. States may consider a full or partial opt-out for residents who have acquired, and maintain, private LTC coverage.
Beyond greater design flexibility, one key benefit of private insurance is portability. What if a California resident decides to relocate to another state during retirement?
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California Assembly Bill 567 Feasibility Report
The State of California is one of several considering long-term care options for its residents. The program may require some California’s residents to fund long-term care protection, either via a payroll tax supported public program, private long-term care insurance, or perhaps a combination of both. Download the Assembly Bill 567 Feasibility Report here to learn what’s being discussed. It’s a rather lengthy document – we’re highlighting key sections below:
- Pages 7 – 9: Key Program Design Features.
- Outlines program elements that will likely be present in all five of the proposed benefit levels.
- Exhibit 2.2: Common Program Design Elements
- Look at the last row in this figure. It covers “Coordination and Interaction” of private insurance to include:
- Private Insurance pays before the Program
- Considerations for individuals with (eligible) private insurance:
- Opt-out provision if purchased before Program’s effective date
- Reduced Program contributions if purchased after Program’s effective date
- Program pays before Medi-Cal and should not influence Medi-Cal eligibility
- Look at the last row in this figure. It covers “Coordination and Interaction” of private insurance to include:
- Exhibit 2.3: Summary of Program designs
- This would be the most succinct description of the five benefit packages being considered
- Page 17: Section 3.e.
- For the proposed Program opt-out provisions, a definition of the insurance products eligible for either opt-out or reduced Program contributions (e.g., type of insurance, minimum benefits, etc.) is yet to be determined.
- Page 34-35: Section 4.3.3.1.2: Private Insurance Opt-Out Considerations: Sub-section 3:
- While including a time-limited opt-out window would increase flexibility for prospective private insurance consumers, a surge in private insurance applications would likely occur in the months leading up to the deadline, similar to what happened with the WA Cares Fund. To mitigate this outcome, legislation enacting the Program may set a deadline (e.g., the date the Governor signs the legislation), which would make any new LTC policy sales ineligible for Program opt-out after the deadline. The Task Force discussed a range of limited-window opt-out deadline options, as illustrated by the following hypothetical example (ordered from longest to shortest opt-out window).
- Program effective date: January 1, 2025
- Governor approval date: October 1, 2024
- Senate pass date: September 1, 2024
- Assembly pass date: August 1, 2024
- Beginning of the year preceding the Program effective date: January 1, 2024
Reading pages 34-35 of the Feasibility Report, it appears the state, if it enacts a long-term care funding program, may try to prevent private insurance chaos in advance of a payroll tax opt-out deadline. That is what happened in Washington. Due to overwhelming demand before Washington’s deadline, many insurers discontinued offering private coverage until after the deadline. California could avoid a repeat of that situation by not announcing an opt-out deadline in advance. What does this mean? Until a law is passed, we are limited to an educated guess, based on publicly available information. At this time, we do not know if a payroll tax opt-out will be available, what private policy features, if any, will be acceptable, and how a policy date will impact a possible partial or full opt-out. And, of course, it’s possible such a law won’t be passed at all. Note that California’s Department of Insurance does not want Financial Advisors to tell consumers that such a program is “likely,” or hint at any possible implementation dates. Therefore, before talking with consumers, read the California Department of Insurance Alert (08/23/2023) that clearly states what Financial Advisors cannot say to consumers – you can download it here. Perhaps it’s best to educate consumers by providing them with the Feasibility Report? This way they can draw their own conclusions about the best approach to their long-term care funding options. Subscribe to our newsletter if you’d like to be kept up-to-date with the latest developments in Sacramento. You can sign up here.
