Public awareness of long-term care insurance (LTC) is growing due, in part, to the realization that the government cannot or will not pay for long-term care costs. The increasing number of people joining the sandwiched generation (or working people responsible for the care of elderly family members) is another factor prompting employees to look to their employers for help. Many employers are responding by offering long-term care insurance. Is LTC something you can cling to should you require long-term care, or is it more likely to leave you stranded without adequate coverage? Read on to find out.
Tutorial: Introduction To Insurance
According to the U.S. Department of Health and Human Services, although about 40% of employers offer some form of LTC insurance, most see only 2% employee participation. This may be due to a lack of understanding regarding this insurance type, so let's take a closer look at what makes up an LTC policy.
Generally, the basic provisions of employer-sponsored LTC and individual policies are similar except that in the case of the employer-sponsored polices, the employer buys the LTC for the benefit of its employees. In any case, the primary goal of LTC is to preserve and protect assets in the event of an illness or injury requiring extended care. (To read more about LTC basics, see A New Approach To Long-Term Care Insurance, Failing Health Could Drain Your Retirement Savings and LTC Coverage Not A No-Brainer.)
The following are highlights of the individual and employer-sponsored LTC policies' features and benefits.
- In order to qualify for benefits, the insured must not be able to perform two of six activities of daily living (dressing, bathing, eating, etc.), or must be suffering from severe cognitive impairment such as dementia.
- A waiting or elimination period must be satisfied before benefits are available.
- Both types of policies usually offer some type of inflation protection.
- Group policies may limit or exclude benefits found in individual LTC policies, such as limited or no coverage for home care, assisted living or hospice care.
- Inflation protection may be curtailed or not offered at all. Instead, employees have the option of buying more coverage at a higher premium.
- Adding LTC makes for a more attractive employee benefits package, which can help recruit and retain workers and increase morale.
- Employer-paid premiums are tax deductible, with some limitations depending on the type of business entity.
- Employers can select employees for coverage, and offer it as part of a key man or executive benefit package because LTC is a non-qualified employee benefit, and therefore is not subject to ERISA or employee discrimination rules.
- Statistically, only 4-5% of eligible employees continually opt for employer-sponsored LTC (U.S. Department of Labor Bureau of Labor Statistics, Long-Term Care Insurance Gains Prominence, 2004).
- Many employees expect the employer to contribute toward the cost of the LTC, which may not be intended by the employer.
- Employers face added administrative costs associated with offering LTC to employees.
- The possibility of lower underwriting standards requiring little or no medical information about the employee/insured makes it easier to get coverage.
- The cost of the employer-sponsored insurance may be lower.
- Coverage can include an employee's spouse, partner, parents and in-laws.
- The cost of the insurance is usually less expensive than individual LTC.
- Tax-qualified LTC benefits are not taxable as income, even if premiums are paid by the employer. Also, employer payments of premium are not considered income to the employee.
- Premiums paid by the employee may be deductible as a medical expense, subject to the 7.5% AGI rule.
- The plan may not be portable, meaning you can't take it with you if you leave your employer.
- Premiums may increase annually and the coverage can be canceled without notice to employees.
- To get coverage, you may have to buy it at a younger age than is customary.
- The employer may not contribute toward the cost of the LTC, or you may not be part of the group of eligible employees offered coverage by the employer.
Is LTC Right for You?
Before deciding whether to participate in an employer-sponsored LTC program, there are a number of factors to consider. If you are 50 or older with assets you'd like to protect from spending on long-term care expenses, it may be worth your while to consider the coverage. Even if you are younger, there are many reasons to consider coverage.
According to the GeorgetownUniversity study, Who Needs Long-Term Care? (May, 2003), more than three million people under the age of 65 need some type of long-term care. The number of people who need long-term care is expected to increase by 30% by 2019 (Caregivers and Long-Term Care Needs in the 21st Century: Will Public Policy Meet the Challenge?, GeorgetownUniversity, July, 2004).
If you have a family member for whom you provide financial support, you may want to consider LTC to preserve your savings for their benefit should you be confronted with long-term care expenses. Because the cost of each of these services will change depending on where you live, let's take a look at the some of the highest, lowest and national average state costs for this sector:
No One Is Immune
We have seen examples of public figures like Michael J. Fox and Christopher Reeve, who have had to face extended long-term care due to illness or injury. Based on the aforementioned figures, savings can be exhausted very quickly to pay for extended healthcare services. LTC can offset some - although not all - of these costs.
There has been marked growth in the number of employees caring for aging parents. A 2005 study conducted by the National Alliance for Caregiving and AARP entitled, Caregiving in the U.S., estimated that 21% of U.S. adults are caregivers. In addition, the need for employees to provide caregiving to others costs employers between $17 billion and $33.6 billion in lost productivity annually (The MetLife Caregiving Costs Study: Productivity Losses to U.S. Business, MetLife MatureMarket Institute in conjunction with the National Alliance for Caregiving, July 2006).
Because of this lost productivity, more employers are providing services and benefits, including LTC, to their employees to ease the burden of care-giving and increase productivity through motivation. Often, employer-sponsored LTC plans allow immediate family members of qualifying employees to participate in the coverage. Because underwriting requirements for most group LTC plans are less stringent, you may be able to get LTC coverage on your aging parent through your employer when none would be available privately due to poor health or lack of affordability.
The Bottom Line
Often, employees aren't using the LTC benefits offered by their employers and it may be due to not understanding the type of insurance available, or its benefits and costs. Lack of education and communication may be attributable to the poor employee participation, but employer-sponsored LTC is a viable and important benefit for employers and employees.