When you think “long term care,” you probably think of elderly people in a nursing home. But 40 percent of the people receiving long-term care services are between the ages of 19 and 64. With nursing care costing an average of $75,000 annually (more in urban areas), long-term care needs can stretch the finances of almost any family.
Long-term care insurance (LTC) can help your employees pay for the cost of nursing home and other long-term care for themselves or for an elderly dependent. Most group LTC plans are voluntary, or employee paid. Voluntary long-term care insurance offers employers a way to reduce absenteeism and improve productivity, loyalty and morale.
A study by the U.S. Department of Health and Human Services says that people who reach age 65 will likely have a 40 percent chance of entering a nursing home. About 10 percent of the people who enter a nursing home will stay there five years or more.
What LTC covers
LTC policies vary widely. However, they all cover non-medical custodial care services excluded by medical insurance (including Medicare and Medicare Advantage). Coverage kicks in when the insured cannot perform two or more “activities of daily living,” such as eating, toileting, transferring, bathing, dressing or continence, or when he/she becomes cognitively impaired due to senile dementia or Alzheimer’s disease.
Employers can choose from three basic options:
• True group plans
• Modified guaranteed issue
• Individual plans with group discounts
True Group Plans
True group plans have several advantages: 1) As “guaranteed issue” plans, they will cover even employees who have a disabling or potentially disabling condition. 2) Employees can convert their coverage to an identical individual plan “at group cost” when leaving the group. 3) Employers can offer a select set of identical benefits to all employees, no matter which state they live in. Many insurers also allow insureds to select optional benefits, which usually require medical underwriting.
Modified Guaranteed Issue
Modified guaranteed issue plans require no medical underwriting, but employees must answer one or more questions that eliminate disabled or very sick workers from the group. For groups with low participation, rates for modified guarantee issue plans are generally less than true group rates. Because modified guaranteed issue programs issue individual policies, the employee can keep the policy and rates when he or she leaves the group.
Individual Plans with Group Discounts
These are identical to plans that are offered to the public but the premiums are discounted from five to 15 percent for the group. The employee can choose any of hundreds of benefit options, since everything is medically underwritten.
What to look for
• Guaranteed renewability and inflation protection: To qualify for tax advantages, LTC plans must offer these features, although insureds can elect not to buy inflation protection.
• Coverage for home healthcare: Many disabled individuals do not require nursing home care, but simply need help with activities of daily living. A policy that provides benefits for home healthcare can help the insured stay in the comfort of his/her own home.
Tax Considerations
• Employers can deduct premiums paid toward tax-qualified group LTC coverage as a business expense. Employer contributions do not count toward the employee’s taxable income, except for contributions made through a flexible spending arrangement or cafeteria plan, which must be included in taxable income.
• Under a voluntary group or individual policy, insureds can include LTC premiums they pay with other unreimbursed medical expenses, subject to a cap that increases with age. Benefits received from LTC policies generally do not count toward taxable income, as long as the benefits do not exceed an insured’s actual long-term care expenses.
