The topic of a LTC in CA is again gaining traction with the latest, and last step, completed by the CA LTC Insurance Task Force (TF).
Background:
AB 567 gave CA the power to establish a task force to explore the possibility of developing an LTC program that would be funded by payroll taxes. Information regarding the TF, its meetings, and reports can be found on the CA Department of Insurance (DOI) website here.
As its last act, the TF presented an actuarial report on December 18, 2023. The actuarial report assessed, amongst other things, five different LTC program designs accompanied by actuarial estimates.
With the presentation of the actuarial report, AB 567’s TF has completed its functions and will presumably disband. However, the TF members have recommended that they continue to meet to establish proposed working groups and further define implementation steps which includes identifying the right legislator to sponsor a potential bill in the CA House or Senate.
Based on the latest TF presentation, they will seek an extension to meet their recommendations so stay tuned for an update on the AB 567 TF.
What happens after the TF disbands? Will CA have a state LTC program? No. AB 567 did not give CA the authority to create a state LTC program. The Feasibility and Actuarial Reports are both public records, and they will be used by legislators to introduce a bill that, if passed, would create a state LTC program funded by payroll taxes.
Does that mean CA hasn’t passed a law requiring a state LTC program? Why do I keep hearing/reading that there is a law? There is no such law, but we have seen a level of misunderstanding regarding what AB 567 entails and authorized for CA. Further, we have seen companies using AB 567 as an opportunity to introduce LTC products.
Many agree that CA is headed towards a state LTC program. However, a bill must be introduced, passed and then signed into law to create a CA state LTC program. There is no such bill currently introduced in the CA House or Senate.
Is it just a matter of time before CA has a state LTC program? Many think so, yes. However, there will be obstacles in getting a bill passed into law including the cost of the program. It’s anyone’s guess as to whether legislators and their constituents have an appetite for increasing taxes to pay for a state LTC program in CA.
What coverage and eligibility provisions will be included in a state LTC program? The TF recommended 5 plan designs for consideration, but even these 5 plan designs aren’t enough to feel comfortable regarding the range of what we may see. With each plan design, the TF requested alternative components as well as different funding scenarios.
The statements in the reports acknowledge that an affordable, widely accessible benefit with comprehensive coverage may not be viable so there will need to be trade-offs for legislative support in passing a bill for a state mandated LTC program. These trade-offs may include raising the eligibility age, limiting coverage, or more.
Should employers offer LTC policies to their employees in order to avoid a potential tax, if a bill is signed into law? Employers should consider a multitude of factors when offering a policy:
- Consider the intent of offering such a policy – an employer offering a policy to its employees will not be exempt from a potential payroll tax. It’s clear in the report that any opt-out provision available will be on an individual basis. This means that an employer can’t opt out on behalf of its employees, rather, employees will need to act to opt out of a potential program.
- Consider whether the LTC policy purchased could be used by an employee to opt out of a potential state LTC program
- Without a bill introducing such a state LTC program, experts can only speculate on plan design, coverage and opt-out provisions.
- Consider the potential cost of a state-run program vs. employer-sponsored private LTC insurance. The TF knows that, to meet revenue requirements, the cost (i.e. via payroll tax) of the state program must be a better value proposition than the private market. A state-run program will not be sustainable without enough revenue to support it. From that perspective, it certainly seems likely that a state-run program is motivated to ensure cost is competitive with the private market.
- Be thoughtful with employee communication. At this time, there’s not enough data to make an informed decision on what type of private policy coverage would be needed to “opt out” of a state LTC program. We caution employers to be transparent regarding the lack of data with regards to the state program costs, coverage or even opt out provisions.
CA does not have a state mandated LTC program, although, it does seem likely that a bill will be introduced by legislators to advance such a program. The timing of a potential bill is unclear, and based on actions preceding a bill, our educated guess is that a bill won’t be introduced in 2024. There’s still much work to be done to garner enough support from legislators.
We are aware of certain vendors or firms who have or will use the latest AB 567 Actuarial Report as an opportunity to sell LTC products to employers or individuals. Employers and individuals should proceed with caution and consider the factors outlined above if purchasing a policy solely to avoid a potential state tax.
Bottom Line: There is no way to be certain that a state LTC program will pass into law, much less what the opt out provisions will entail, how much it will cost compared to the private market, or plan features and design. Bolton will keep our readers updated with news around this topic.
Please contact your IMA benefits consultant for questions.
IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.
This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.