CA AB 567 – Feasibility Report Submitted for a Possible State Long Term Care Program

The topic of Long Term Care (LTC) in CA is again gaining traction with the latest step completed by the CA LTC Insurance Task Force (TF).

The TF presented a feasibility report on December 18, 2022 as required by AB 567. It’s important to note that AB 567 did not give CA the power to create a state LTC program, rather, AB 567 gave CA the power to establish a task force to explore the feasibility of developing such a 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.

The next step required by AB 567 is an actuarial report due on or before January 1, 2024. The actuarial report will provide an in-depth financial analysis of several considerations outlined in the feasibility report.

Once the actuarial report is presented, the report will be submitted to the CA Legislature and other stakeholders. At that time, AB 567’s TF will no longer have any function and will disband.

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 will both be public record, and it will be used by legislators to introduce a bill that 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 since AB 567 dedicated millions of dollars to create a TF which is exploring such a program.

A bill must be introduced, passed and then signed into law to create a CA state LTC program. It seems inevitable that such a bill will be introduced once the TF presents the actuarial report due on or before January 1, 2024.

Is it just a matter of time that CA has a state LTC program? Many think so, yes. While clearly stated as “hypothetical”, the Feasibility Report provided examples of considerations for a timeline. One specific example illustrated a January 1, 2025 effective date for a state run LTC program.

Note: The report emphasized that the timeline was “hypothetical” and only used to be an example of what a roll-out would look like from a timing perspective. If a bill is introduced to mandate a state LTC program, we will then have proposed dates to anticipate. As a reminder, the introduction of a bill is the first step. It must be passed by the House, the Senate and then signed into law.

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 range of what we may see. With each plan design, the TF requested actuarial models of different levels of coverage and tax structures.

The statements in the report acknowledged 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 eligibility age, limiting coverage, or more.

Should employers offer LTC policies to its employees now avoid a potential payroll tax? 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 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 won’t 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.

Bottom Line: CA does not have a state mandated LTC program, although, it does seem likely that a bill will be introduced by legislators sometime in 2024 to advance such a program. We are watching the WA LTC state program carefully as its success (or not) will help legislators gain enough votes to pass a state LTC program into law.

We are aware of certain vendors or firms who have or will use the latest AB 567 Feasibility 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 to fund the program.

Bolton comment: 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. It’s simply too early to make intelligent predictions. Bolton will keep our readers updated with news around this topic which isn’t anticipated until around this time next year.

Please contact your Bolton benefits consultant for questions.


About Michelle Cammayo, Compliance National Practice Leader, Employee Benefits

Michelle Cammayo has close to 20 years of Employee Benefits experience specializing in all lines of health and welfare benefits. Today, Michelle works closely with clients and partners to provide guidance in areas of the law including ERISA, HIPAA, COBRA, FMLA and PPACA. She is also the IMA National Practice Leader for Compliance and endeavors to ensure IMA helps its clients manage and eliminate risk in the most effective manner. She is passionate about educating others and her passion for this shined in the COVID era where Michelle conducted weekly and then monthly webinars providing guidance to employers. Her podcast, Cammayo’s Compliance Talk, has gained popularity in the last three years to become a favorite amongst our clients. She also contributes regularly to our Blog and has authored several articles for industry-related newsletters. Michelle’s consultative approach with employers provides practical advice as employers endeavor to be compliant.

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