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Long-Term Care Insurance: What Employers Need To Know

 

Even back in 2000, the U.S. Department of Labor said, "There is a potentially future  serious long-term care (LTC) crisis in the United States." This prediction is materializing, with studies showing a rapidly growing need for long-term care. One reason for this growth is that Americans are living longer.

The U.S. Census Bureau says that the 65-and-over population is projected to reach 83.7 million in 2050, nearly double the amount from 2012. While older individuals tend to need long-term care the most, the U.S. General Accounting Office estimates that 40% of those receiving LTC are between 18 and 64 years old. The reality is that only a small percentage of those who need LTC insurance actually have it, according to a report by LTCI Partners.

What is employer-sponsored long-term care insurance?

LTC insurance helps cover the cost of assisted living, home health care, alternate care and hospice care services. Coverage may also include:

  • Care coordination services.
  • Medical equipment.
  • Bed reservation reimbursements.
  • Homemaker chores.
  • Caregiver training.
  • Home-delivered meals.
  • Survivorship benefits.

Typically, LTC coverage kicks in if the person is cognitively impaired or needs help with at least two of six daily-living activities — such as eating and bathing.

With employer-sponsored LTC insurance, the employee buys the policy from their employer rather than from the insurance company or an agent.  

What are the benefits of employer-sponsored LTC insurance?

  • Employees are typically subject to fewer underwriting requirements when buying LTC insurance from their employer — which makes it easier for them to qualify for coverage.
  • The employer's premiums are tax deductible as a business expense. In addition, premiums are not taxable to the employee.
  • If employees have a pretax health savings account, they can use it to pay (and lower) their LTC insurance premiums.
  • Employees' premiums are tax deductible, up to the IRS' annual limit. The premiums are tax-free if paid through an HSA. 

Competitive advantage is another reason to offer LTC coverage. Despite the overall need for greater access to LTC insurance, the employer-sponsored LTC insurance market is growing.

A report by the Health Insurance Association of America conveys that "Many small employers (with 1-100 employees) have also started offering long-term care insurance. In 1990, 58 companies offered the benefit. By 1999, that number had grown to about 2,000. Small-to-medium-sized employers (with 1-500 employees) represent more than two-thirds of all employers offering coverage to their employees, retirees, or both."

Employers can set themselves apart from their competitors by offering LTC insurance.

Any challenges in store for employers?

Long-term care insurance is expensive. So, before offering it, employers should ensure there's an unmistakable need for the benefit at their workplace.

To maximize program participation, compromise is usually needed. For example, the employer pays for basic LTC coverage and gives employees the option to purchase additional coverage.

Finally, employers cannot offer LTC insurance through a cafeteria (or Section 125) plan, which enables pretax deductions. But as stated earlier, there are other ways for employers and employees to reap tax benefits.

Let us know if you'd like to offer LTC insurance at your company.

 

 
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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