More employers are offering long term care insurance (LTCi) to retain and attract employees. Why now? Because more employees are starting to understand the importance of long term care planning because they are experiencing the impact as they care for their aging parents. Purchasing LTC insurance as an employee benefit may be more cost-effective for many employees. It also may be the only coverage some employees will qualify for. If you understand how the benefit and the process work within the employer space, it will help you find the right solution for the companies you serve.
In this Guide
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Why Offer A Worksite LTCi Benefit?
Long-term care insurance is becoming a hot topic among top employers. Why? For several reasons:
- Employers are searching for a valuable benefit to attract and retain top talent
- More employees are providing care to their parents and other family members. This has led to an increase in awareness about LTC planning
- Due to the rising cost of care and the increase in care needs, several states are evaluating a new payroll tax to fund a modest long-term care benefit. Some of these states may allow an exemption from the tax if the employee already has long-term care insurance
- The cost of care is significant and long-term care financing should be a consideration in any personal retirement plan
- Guaranteed issue: It could literally be the only long-term care coverage some of your employees can qualify for or afford
- Meaningful age-based pricing
- Fully portable benefits
- Simplified enrollment process
- May qualify employees for exemption from long-term care payroll tax
- Early adopters of this strategy will benefit from a wider availability of product choices as some carriers may choose to exit the market in a state that is adopting a state mandate
What Qualifies as Long Term Care Insurance?
California, with its 16 million strong workforce, is considering a publicly funded long term care benefit. A recent feasibility study suggests that the legislation may allow an exemption from the payroll tax if the employee already owns private long-term care insurance. In this article we explain what section 7702(b) is, how it works, how it differs from chronic illness riders (IRC 101(g)), and the advantages and disadvantages of each.
Long Term Care State Payroll Tax Updates
Stay informed on legislation regarding a long term care state mandate that could impact employee payroll taxes.
Offer As A Voluntary Benefit
Long-term care insurance can help protect employees and their families from the financial burden of paying for long-term care services out of pocket. It can also give them more choices and control over the type and quality of care they receive.
Providing long-term care insurance as a group benefit is a cost-effective way to help employees plan for their future. As an employer, you can offer long-term care insurance to your employees as a voluntary benefit, allowing them to choose to enroll in the plan and pay the premiums themselves. Some employers contribute to the cost of the premiums as part of their benefits package.
Educating By The Numbers
What is the challenge employees face if they have a long-term care event?
- The average annual cost of long-term care services in the U.S. was $108,405 in 20211
- According to a recent study by the Administration on Aging, the average duration of long-term care claims was 3.7 years
- The likelihood of needing long-term care at some point in life is 50% for people age 65 and older
- More than 80% of employees with caregiving responsibilities admitted that caregiving affected their productivity— specifically, their ability to perform their best at work all the time not to mention the time off that they need to provide care
According to the American Association for Long-Term Care Insurance, only 7.5 million Americans have some form of long-term care insurance as of January 1, 2020.
- One in six responding organizations (16%) offers long-term care insurance as a voluntary benefit
- About one in ten (9%) offer long-term care insurance as an employer-paid benefit
- Most but not all people in need of long term care are elderly. Approximately 63% are aged 65 and older (6.3 million); the remaining 37% are 64 years of age and younger (3.7 million). 2
The Long Term Care Challenge
It’s clear that there is a large gap between the demand and the supply of long-term care insurance in the workplace.
Offering long-term care insurance as a valuable benefit can have several advantages for employers and employees. For employers, it can help attract and retain talent, enhance employee satisfaction and loyalty, and reduce absenteeism and presenteeism due to caregiving responsibilities. For employees, it can help protect their savings and assets, provide peace of mind and security, and increase their access and choice of long-term care services.
The Worksite/Employer Long-Term Care Insurance Solutions
Tax Advantages of LTCi
Long term care insurance is considered health insurance [IRC 7702B(b)]. Any premium paid on behalf of owners/employees, their spouses and dependents, retirees and their spouses, may be fully deductible as a business expense [IRC 162(I)] depending on the structure of the business. Premiums may be paid from health savings accounts.
Benefits received from tax-qualified reimbursement contracts are tax free. Benefits received from tax-qualified indemnity contracts in excess of $370 per day are taxable to the extent the benefits received are not justified by actual expenses.
With respect to employer contributory arrangements, the employer is not subject to anti-discrimination rules. Employer-paid, tax-qualified long-term care insurance policies are NOT covered under the Employee Retirement Income Security Act of 1974.
Understanding the Cost of Care
The cost of care varies by the care setting, geographic region of care, and degree of care required, among several additional factors. Take a look at the impact that Covid has had on the cost of care, who ultimately pays for care, and projected future costs.
Simplified Enrollment Process
The process of enrolling in long-term care insurance is simple and convenient. Here are the steps involved:
- Gather census information: DOB, gender, zip code, salary
- Determine how much you want to contribute to the premiums, if any, and how to collect and remit the payments
- Decide on enrollment period: during open enrollment or off-cycle
- Educate your employees on the benefit of long-term care insurance by provide them with educational materials and resources
- Employees provided with simple online enrollment process
- Ongoing support and assistance to employees who have questions or need help with claims
Awareness of LTCi as a valuable benefit will continue to grow as the population ages, more employees will find themselves in caregiver situations. Employers can be on the leading edge by offering long term care insurance as a benefit.
Long Term Care Funding Strategies for Business Owners
Learn how to use a pre-tax Health Savings Account to fund long term care, the differences between traditional and hybrid plans, and the tax advantages to offering LTCi to employees.
