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Thirteen states in the U.S.—including California, New York, Pennsylvania, Illinois, Michigan, and Minnesota—are considering taxing those without a long-term care insurance policy. In Washington, where the mandate has already passed, residents were given a grace period to purchase a long-term care insurance policy to avoid the payroll tax of 58 cents on every $100 earned.

The launch of this program was originally planned for January 2022, but it has been delayed due to concerns about its long-term solvency. Critics have cited problems with the payroll deductions for the program, which has now been pushed back to July 2023, with benefits only becoming available in July 2026. At present, thirteen states have voiced their support for the new long-term care tax. 

What happens if one doesn’t have a long-term care insurance policy? Such individuals may qualify for the state-supplied benefit, which allocates $36,500 for lifetime extended care needs. Still, this will not be enough to cover the full costs of long-term care needs, especially in places with a higher cost of living, like Washington, where the average cost of in-home care is around $6,700 per month. Additionally, the cost of nursing homes is expected to rise from $12,000 a month to an average of $23,000 per month by 2050.

How will the tax money be spent? The new long-term care tax is intended to fund the Medicaid program, the country’s primary payor of long-term health care expenses. For this reason, other states hope that introducing the new tax will relieve some of the financial pressure on the government-run Medicaid program and provide sufficient long-term care support and services to low-income citizens.

What are the challenges of implementing the tax? Before more states decide to implement the tax, one question remains: Will the states give their residents enough advanced notice to obtain long-term care insurance to avoid the tax? 

One concern among American citizens is that it takes approximately six to eight weeks to apply and get approved for long-term care coverage. In Washington, many residents ran out of time to obtain long-term care insurance because they were given only a short amount of time to apply. 

Another concern among citizens is that the tax is based on a resident’s earned income and does not come with a cap. This means that the more money someone earns, the more tax they pay, leaving mid-to-high-income earners worried about the high tax they will need to pay.

A senior citizen is filling out an application for long-term care tax.
Thirteen states in the U.S. are considering taxing those without a long-term care insurance policy.

What does the future hold? While there is no talk of a federal mandate to implement the long-term care tax, individual states are free to adopt the new tax or not. Experts in the field believe that more states will devise a similar long-term care tax program in the coming years. Therefore, advising American citizens to start being more proactive in planning their long-term care support and finances.