A Potential New California Tax: What Clients Want to Know

Claude Thau

5/13/2023 · 5 min read

Synopsis: California is pricing a tax designed to fund a small, long-term care (LTC) benefit. It would overcharge high-earners to help pay for LTC for low-earners.
If you have private Long-Term Care Insurance (LTCi) by this year-end (2023), you likely can be permanently exempt from such a tax. However, by the time we know the details, it will likely be too late to become exempt, as legislators want to avoid last-minute exemptions.
Clients who want an exemption should act promptly. If they delay, they may be deferred due to surgery, physical therapy, a medication change, etc., losing their opportunity to be exempt. Now is the best time to buy LTCi for several reasons, not just exemption.
To maximize the chance of qualifying for exemption, we recommend a policy that qualifies under §7702(B) and:

  1. An initial benefit at least $100/day ($3100/mo. ($150/day is safer, and clients could reduce size later).
  2. Automatic compounding of at least 3% per year.
  3. A benefit period of two or more years.
  4. An elimination period no longer than 90 days.

To sell LTCi, you must have a current 8-hour California LTCi certification. If you don’t want to get certified, you can refer your client to a certified broker or our team. To get certified, find an appropriate class at
https://ltcinsurancece.com or http://www.kruise.com
or www.ltcconnection.com or www.webce.com or www.reged.com .

Below we explain the background and the tools Back9 provides to help you serve your clients.
Caveat: we can’t be sure that CA will implement a program or how it would work.

Background: Inspired by Washington state’s “WA Cares Fund” (WCF), a Task Force (TF) established by CA AB 567 submitted 5 alternative state mandatory LTCi programs to the California insurance department and legislature.

WCF imposes a 0.58% tax ($580 on every $100,000 earned) on all employee employer-paid income (uncapped) to provide a LTCi benefit of up to $36,500 (intended to increase annually, starting in 2026, based on the WA Consumer Price Index) for in-state care only. WA allowed Washingtonians to buy private LTCi, hence be exempt from the tax, up to November 2021. Because the window of opportunity extended beyond the law’s passage date, people bought about 50 x as many stand-alone LTCi coverages in WA in 2021 than in 2020 and nearly twice as many life/LTCi combo coverages as in 2020.

One-eighth of Washingtonians applied for exemptions. Disproportionately young male high-earners, they cost the program lots of long-term revenue. So, other states want a minimal window. California could pass such a tax in 2024, in which case it will likely require that policies be purchased by 12/31/2023 to be exempt. By design, we won’t know the specific requirements until it is too late.

The TF strongly supported exemptions because exemptions reward personal responsibility, reduce political opposition, and cost little if the window for exemptions is tight. (Most people who have LTCi are retired or close to retirement, hence would pay the tax for few years.)

Like WA, the TF proposed to fund the benefit with a payroll tax, with some possible twists. The TF said 25% to 50% might be paid by the employer, but that would increase opposition. The proposal suggests that self-employed people bear an income tax instead of a payroll tax.

Support from Back9 regarding this potential tax:

  1. Our Quote & Apply system shows stand-alone (traditional) LTCi side-by-side with linked benefit (life insurance with LTCi). Clients can study LTCi and apply for coverage with as little or as much of your help as you and they desire. If you don’t have a Quote & Apply website yet, contact your Back9 Marketing Manager. If you don’t have a Back9 Marketing Manager, click here to get your website in 20 seconds if you know your NPN: https://app.back9ins.com/join/WbkneAE.

  2. An educational fillable flyer for consumers (you can put your contact info on it).

  3. 15-minute consumer webinars to which you can invite consumer clients.

  4. 20-minute employer webinars to which you can invite employer clients.

  5. Email templates refer people to your Quote & Apply website for more info.

  6. A fillable LTCi flyer for employers.

  7. A spreadsheet that identifies whether being exempt would save a client money in the first 12 months of such a program. In subsequent years, they are likely to save more if their income rises, until retirement when the tax would disappear, but premiums would continue.

  8. To prequalify clients’ health, send them this link Click here to submit your confidential health profile (Click here to submit your confidential health profile. It comes straight to Back9.

  9. Our proprietary Range of Exposure tool projects the likelihood of spending different amounts of money on LTC, depending on a person’s age, gender, marital status, caregiving network, etc.

  10. Stratecision allows you to compare prices even for carriers we don’t represent.

  11. Our nationally known LTCi expert LTCi: Claude Thau, [email protected], 913-707-8863.

  12. Click Here for a relevant webinar. Here’s the agenda, so you can skip to the portion you’d like.

    a. Intro to Back9

    b. Nationwide’s new CareMatters II California product (3:00 to 13:45)

    c. WA Care Fund and CA Potential Tax (13:45 to 35:45)

    d. Opportunities including tax breaks for employers and why people should buy LTCi now (35:45 to 43:25)

    e. Back9’s tools to help advisors (43:25 to 53:00)

Please note: there is no certainty that such a program will be passed, nor how it would operate.