This article was written by BuddyIns CEO Marc Glickman and first appeared in the Q1 2022 issue of Broker's World.
What follows is my first-hand account of the 2021 Washington Cares Fund initial rollout and my reflections on the impact of the law. At BuddyIns, we built our community to help insurance agencies, referral partners, and long term care insurance specialists educate Americans about long term care planning and best-value insurance solutions. As our community has embraced new technologies, this naturally puts us in a position to help during the turbulent Washington market during the summer of 2021.
We made the decision early in the process to maintain our overall mission despite the fast-paced environment in Washington. We focused on education and the value of the insurance coverage itself, even if clients were also pursuing an opt out to the state’s payroll tax.
This article was originally written as of late September 2021 as our teams continued to work closely with clients to navigate the state rules and carrier changes that are still in development. Even as of early December 2021, there is still legislative talk of delaying implementation.
I hope this story can benefit consumers and insurance specialists across the country who may face similar decisions from actions that their states may take to address long term care expenses.
"...Insurance companies took a wait and see approach as the state had not engaged as much with the private insurance community as the law was being developed."
March 2019—A New Long Term Care Payroll Tax Passes in Washington
The Washington Trust Act first passed in 2019. This law seemed different from the Federal Class Act program a decade earlier that was a part of the Affordable Care Act. The Class Act did not succeed once it was deemed not to be actuarially sustainable. The Trust Act was different in the fact that it required mandatory participation for every W-2 employee and that it would be funded through a payroll tax. It won’t be until 2022 that the payroll tax is planned to be implemented while allowing an opt out exemption through the purchase of private long term care insurance.
In 2019, the insurance companies took a wait and see approach as the state had not engaged as much with the private insurance community as the law was being developed.
February/March 2021—Awareness of the Law Expands
Something changed in early 2021. The Washington legislature worked feverishly to amend the law that was about to be implemented. The biggest issues in the legislative negotiations seemed to revolve around the private insurance opt out and deadlines. What types of insurance products qualified for the payroll tax exemption? When must an employee purchase a policy to opt out? Growing concern in the December 2020 actuarial report suggested that if too many taxpayers opted out, the trust would be underfunded to pay out future benefits. The amended law vacillated between different deadlines for the private insurance opt out until a final negotiated date was set to require purchase prior to November 1, 2021.
Suddenly, there was much less time to plan for private insurance as an alternative to the payroll tax. This got the attention of many employers. The insurance companies and agents began to notice a rapid increase in demand.
At BuddyIns, we co-hosted an educational webinar for the Washington clients of a large employer benefits firm. To our amazement, over 700 registered, including the CEOs, CFOs, and HR directors of many employers in the Pacific Northwest.
April 2021—Employers and Carriers React
In a matter of weeks we received requests from over 200 Washington employers to begin immediate LTCI enrollments. We realized we were going to need a bigger boat.
We surveyed nearly 30 long term care insurance companies that spanned the spectrum of standalone, hybrid, and worksite products to gauge their interest in offering products in Washington. The worksite and standalone carriers experienced the heaviest inquiries. There was an even greater rush since the largest standalone worksite company had already announced their exit from the entire LTCI market. The other worksite and standalone LTCI carriers began to ration the availability of their products in Washington. Adding more uncertainty, it was not entirely clear whether the life/long term care hybrid worksite products would qualify for the exemption because the Washington state definition of long term care insurance was fairly broad.
Reactions of the carriers with individual standalone and hybrid LTCI products ran the gamut from extreme caution about offering their products to aggressively promoting their products even in the face of uncertainty on the state rules.
At BuddyIns, we prepared for both worksite and customized individual solutions. We launched a new website to handle the volume, developed a system to manage enrollment emails, and automated reporting to track employer and employee relationships. We prepared ongoing live educational webinars throughout the summer to educate thousands of employees. We also quickly began building a large team of experienced account managers and LTCI specialists for one-on-one long term care planning consultations.
May 2021—Warning Signs Ahead
In late April, the amended law passed as expected, but notably without a formal definition of the products that qualified for exemption aside from the general Washington definition. One Friday in mid-May, an update appeared on the state’s website to include new language defining qualifying long term care insurance in a stricter fashion. This could potentially disqualify many products including options for employer enrollments beginning the following week.
Just as concerning, we started to notice a consistent theme in our conversations with employers and employees. The questions include: How long do our employees need to keep the policies? When can we terminate the payroll deduction? The state is not going to check next year that everyone still has the policy, are they?
Unfortunately, there did not seem to be a mechanism anticipated in the law that would re-certify coverage. Nor was it clear that the state had been provided resources for ongoing review of the payroll tax exemptions after the initial opt out period.
At this point, BuddyIns faced a crossroads. Our mission is to do what is best for our clients and to fairly recommend the coverage as it is intended to be offered by the insurance companies. Despite the pressure to move forward with the planned worksite enrollments, we decided that it would not be in the clients’ or carriers’ best interest for the majority of the enrollments.
We still had the capacity and expertise to provide individual solutions offered one-on-one by LTCI specialists. If the vast majority of our enrollments would be individual consultations, we were going to need an even larger specialist team.
"Our platform gave us the flexibility to quickly bring in highly qualified and vetted LTCI specialists."
June 2021—Growing to Meet Demand
Our platform gave us the flexibility to quickly bring in highly qualified and vetted LTCI specialists. However, we never expected to have to do it this quickly and at this scale.
We began onboarding an additional five to 10 LTCI specialists each week over the next two months. Soon, we had grown the team to nearly 70 specialists. Our new specialist team had to quickly learn the rules in Washington, our technology platform, how to have quicker planning meetings, and to navigate all of the insurance company changes.
Long term care planning is a consultative process that typically takes months. This was the most difficult transition the team had to embrace. How do we abbreviate the process to meet the state deadlines? We developed an approach to offer at least minimum, meaningful coverage for clients who intended to keep the policy for long term care planning purposes. Additional coverage as a supplement could be offered once the clients had more time to plan beyond the November 1, 2021, deadline.
July 2021–Carrier Changes Ahead
Once we substituted most of the worksite enrollments for individual custom consultations, we were off and running. As you might expect, the most challenging conversation was with a typically younger employer just looking to opt out and with no particular interest to learn about the coverage or long term care planning. While we firmly believed it was in everyone’s best interest to offer the products the way they were designed, there was still significant pushback from employers, employees, and consultants. Their frustration was not directed towards us, but rather at Washington state for having mandated such a short time period to make this important planning decision.
Of course, many LTCI agencies and agents in the market were taking different approaches. Some agents were getting licensed for LTCI in Washington for the very first time and many were succumbing to the temptation to figure out how to sell the lowest priced product possible to “beat the tax.”
As a result, one of the largest standalone carriers in the market announced they were exiting in Washington in late June. This put pressure and greater demand on the other carriers. Soon carriers began imposing minimum coverage requirements. Behind the scenes, carriers began to contemplate their exit from Washington as it was clear they could not satisfy the demand in such a short time frame.
August 2021 – Supply Leaves the Market
Early August represented a collapse in the supply of individual LTCI and hybrid products in Washington. As the carriers announced major product changes weekly, it only served to stimulate more demand. The carriers had no choice but to shut down as they simply could not keep up with the demand. One of the largest carriers in the market shared with us that at the peak, they were receiving about 1,000 individual applications per hour, which might normally be the number of applications they received in a month across the entire country. They simply did not have the systems or employees to satisfy the demand.
Our BuddyIns team did its best to pivot to the remaining solutions, but so did the rest of the market. We were fortunate to have access to a broad portfolio of product and specialists with expertise in a variety of different options. Nonetheless, by the end of August, the only products that remained had limited distribution and therefore more supply constraints. BuddyIns continued to offer clients excellent options for those interested in meaningful long term care benefits, but for younger clients looking for individual solutions, there simply were not many options available.
The worksite options continued to be offered in the market despite the challenges of not knowing for sure whether the products would qualify for opt out and if clients would keep the coverage.
Time was running out anyway for clients to submit their applications.
September 2021—Reflections on the Washington Fire Sale
I’m proud of what our team accomplished in a short period of time and in a challenging environment. While we couldn’t offer an insurance solution to everyone who sought our help, we helped many individuals learn about long term care planning and developed many relationships. These relationships will continue to be important as we help clients and referral partners navigate the long term care insurance market for years to come.
Washington became the first state in the country to move toward a path of providing a minimum level of long term care coverage funded by their workers. This is the litmus test in a social experiment whose implications we do not yet fully understand.
There are elements of the Washington program that were well designed, like requiring the program to be actuarially sound, which meant mandatory participation. The state was tasked with creating a long term care planning education and awareness campaign that has the potential to help families in a variety of ways. The state also emphasized providing more home health care benefits, which will take some of the burden off of the WA Medicaid program which had begun to absorb much of these costs.
However, there may have been missteps that can serve as a learning experience for other states. For instance, Washington may have been better served by engaging with the private insurance companies early on to coordinate benefits, ensure supply, and give people a realistic way to purchase their own private plan. The state and private markets ended up competing against one another with mixed messages that created an environment of distrust and uncertainty with the consumer instead of embracing the other side. Consumers that were the right candidates for private long term care insurance did not have enough time to plan and lost many private insurance options while deciding what to do. Others still don’t know there is a payroll tax yet. Ironically, both the public and private markets need each other to solve the long term care financing issue.
With the wave of baby boomers entering extended care years, and with the effects of COVID placing additional strain on long term care costs, we are beginning to hear about a wave of new states exploring a payroll tax to fund a minimum amount of long term care. They can use the Washington experience as a guide to create better outcomes and coordination. Washington state is continuing to explore positive changes. Now that the ability to purchase private insurance for opt out may be over, Washington is embracing the private market to supplement the far greater risk that faces their millions of residents beyond the $36,500 with nominal increases that the payroll tax is intended to provide.
At BuddyIns, we will continue to monitor the activities in Washington and other states considering similar legislation. We intend to continue to be a trusted resource for long term care planning.