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Friday, June 2, 2023
June 2, 2023

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Federal judge dismisses lawsuit against long-term care tax


OLYMPIA — A federal judge has dismissed a class action lawsuit that was filed by opponents of a mandatory payroll premium to fund Washington’s recently delayed long-term care program, saying the court did not have jurisdiction since it was a state tax.

The ruling, filed Monday by Judge Thomas Zilly of the U.S. District Court for the Western District of Washington, is in response to the November lawsuit filed on behalf of three businesses in the state and six individuals who claimed that the program — known as the WA Cares Fund — violates a federal law that forbids the state from passing any law that requires employees to participate in a plan that provides sickness or medical benefits.

The suit also argued the law violated the Equal Protection and the Privileges and Immunities clauses of the U.S. Constitution and the Older Workers Benefit Protection Act.

“The Court is persuaded that the challenged WA Cares premium constitutes a tax, and the Tax Injunction Act “drastically” limits federal district court jurisdiction “to interfere with so important a local concern as the collection of taxes,” Zilly wrote, citing a 1981 U.S. Supreme Court ruling involving property taxes.

“Any legal challenge to WA Cares must be brought in state court,” he wrote.

The first in-the-nation program that created a defined benefit to help offset the costs of long-term care was delayed by 18 months following legislative action in January.

Richard Birmingham, a partner at Davis Wright Tremaine LLP — the firm that filed the suit — said in an email than any pursuit of litigation through the state courts is likely to be delayed until closer to the new July 2023 implementation date to see what further action the Legislature may take that could affect the underlying law.

The delay came following criticisms about elements of the underlying law, and to give a commission tasked with providing the Legislature policy options time to consider other potential changes to the law, including possibly making the benefit portable for those who pay in and move out of state. But the delay also came at a time when opponents were raising solvency concerns, including the fact that more than 470,000 people — or approximately 13% of the state’s workforce — had already opted out of the program.

The .58% of total pay per paycheck payroll tax that pays for the benefit — which was supposed to start being collected by employers at the start of the year— is now delayed until July 1, 2023.

Access to the benefit to pay for things like in-home care, home modifications like wheelchair ramps and rides to the doctor is now delayed from Jan. 1, 2025, until July 1, 2026. The lifetime maximum of the benefit is $36,500, with annual increases to be determined based on inflation.

Addressing one of the criticisms raised by the lawsuit, the Legislature also allowed people born before Jan. 1, 1968, who do not become vested in the program because they do not pay the premium for 10 years, to now qualify for partial benefits under the bill.

Another bill approved this year targeted another concern leveled at the underlying law, and allowed people who work in Washington but live in other states to opt out, along with spouses or partners of active military members and temporary workers with nonimmigrant visas.

Republicans have argued that the underlying bill should be repealed, but supporters say it is a necessary measure to help a majority of residents 65 and older who are likely to require some type of assistance to live independently.

“After key improvements to WA Cares during this year’s legislative session, the program is set up for success in the long term,” Ben Veghte, the director of the WA Cares Fund, said in a written statement. “This decision is another step toward making long-term care accessible for all Washingtonians and setting an example for the rest of the nation to follow.”