Long –Term Care: An Impending Crisis for an Aging Population

By: Andrew M. Porrazzo, CLTC

Long-term care costs can easily exhaust a lifetime of savings. It is of great concern that many individuals and families are not fully aware of the cost for care, underestimate the risk of needing care, and often have misconceptions about who will pay for their care. Regardless, without proper planning and incorporating long-term care insurance as a component of the overall financial plan can result in devastating consequences on one’s assets and retirement portfolio. More to the point, planning for long-term care is essential to achieving a successful retirement. And while planning doesn’t necessarily guarantee complete financial security, not planning for it virtually guarantees failure.

Government programs:

With a longer life expectancy and the associated costs, outliving one’s retirement has become a major concern for individuals either approaching retirement or currently living on retirement income. Relying on government programs such as Medicare and Medicaid is not realistic. Medicare, a federal health insurance program, will provide short-term coverage for stays in skilled nursing facilities but only after specific criteria is met. Medicaid is a state and federally funded program that pays for skilled care in nursing homes for low-income individuals. It is considered an entitlement program. To qualify for Medicaid, and meet the eligibility requirements, you must first meet income and asset limits set by the Department of Social Services. Once care is needed, and to qualify for Medicaid’s income and asset limit guidelines, an individual is required to “spend down” their assets. In the final analysis, to pay for long-term care expenses, an individual should not rely on government- funded programs.

The changing landscape in worksite benefits:

Amid rising health care costs, an aging workforce and the ongoing trend of cost shifting, employers are beginning to focus on offering products that are critical to retirement and financial planning. Throughout the workplace, employees are funding - at an increasing rate - the percentage of benefit costs. Thus, the market dynamics are placing most of the burden of funding retirement savings on the employee. As a consequence, employees are depending more on the workplace as a place to purchase advisory-related products. With benefit satisfaction correlating with job satisfaction, offering long-term care insurance and other retirement related products - on either a subsidized or voluntary basis - enhances a benefit package and complements retirement planning programs in the workplace. In summary, employers are faced with the impact of longevity, an aging workforce, and the burden of cost shifting while contending with benefit related issues such as health care, disability insurance and long-term care insurance.

Why long-term care as an employee benefit:

Among the various needs of an employee, employers have historically offered a benefit resolution to provide coverage for these needs. Long-term care completes the benefits portfolio by protecting an employees assets and retirement savings. Due to the ever-increasing care-giving responsibilities among employees, businesses lose billions of dollars annually through absenteeism, a decline in productivity as well as the emotional and financial implications. As a result of these issues, the interest in offering long-term care insurance as an employee benefit is increasing dramatically. Lastly, and why LTC should be included in a benefit package, there are significant employer and employee tax incentives that will clearly resonate with business owners and provide a value added funding solution that can help establish protection for everyone.

Employer Market Plans:

Employer Tax Advantages for Qualiied LTC Insurance:

Can be selective in which employees are covered
Can deduct 100% of the premium paid as a business expense
Age-based eligible premium deductible from HSA and HRA
Premium is not considered as taxable income to employee
Long-Term Care Insurance benefits are gnerally non-taxable

Long Term Care Insurance Employee Benefit Plans

In our economy today employers today face many challenges in meeting and exceeding their business objectives. One fundamental to excelling in any business is to ensure employees are focused and productive in the workplace. As baby boomers increase in effectiveness, they also increase in age, and so do their parents. When employees become caregivers in the workplace, employers will face increased costs due to employee absenteeism and decreased productivity. An employee is twice as likely to stay in the workforce and remain productive if their elderly or sick relative has long-term care insurance. To support you we have developed a portfolio of long-term care insurance solutions for employers who are interested in helping employees care for parents, protect family assets and maintain employee productivity. Our long-term care solutions include:

Executive Carve Out Plans

Owners and executives are often individuals who are older in age, and closer to the need for long term care solutions for themselves and their spouses. Plans can be tailored to cover key employees on a premium discounted and tax advantages basis. Depending on the type of corporation, employers can take a full or partial deduction for long-term care insurance premiums, receive tax free benefits and select from a variety funding alternatives such as lifetime, limited or single payment plans. These programs provide peace of mind to key employees who want to protect assets and obtain coverage before health conditions prohibit them from qualifying for insurance.

Core Buy-Up Plans

Employers who are serious about ensuring productivity, are willing to make a financial commitment to long-term care insurance. Core Buy-Up plans involve a small monthly contribution by the employer toward a base long-term care insurance plan for each employee. The option to increase the level of coverage is offered to each employee through payroll deduction. Core Buy-Up plans traditionally achieve higher levels of employee and spouse participation. Increased participation often results in greater parental awareness, and participation which will serve to safeguard employee productivity when care giving occurs.

Voluntary Plans

Employers who are looking to help employees find a solution for long-term care insurance in the workplace can offer plans in which the employee pays the full cost. Voluntary plans traditionally suffer from low participation, and often do not meet contract minimums for participation. However, for those employers who are interested in conveying the importance of long-term care insurance as an employee benefit, voluntary plans can be a success. Employer commitment includes management education meetings, distribution of pre-communication materials and sponsorship of mandatory employee enrollment meetings.

LTC Advisor Program

The current environment of increasing benefit costs may prohibit some employers from making a financial and time commitment to long-term care insurance as a benefit for employees. However, these employers can still offer an experienced and professional resource for employees and parents interested in long-term care insurance planning. Our firm will assign a professionally certified long-term care insurance Advisor to the employer. They will be available to provide a management overview of the Advisor Program, and to conduct employee educational meetings on the need for long-term care insurance. The Advisor is also available for a no cost long-term care planning assessment for employees and their parents.

Long-Term Care Insurance (LTCi) as an Employee Benefit

The value of offering LTC to employees in the workplace provides individuals with numerous advantages:

Ø Premium discounts of 5-10% for employees and family members

Ø Streamlined underwriting

Ø Convenience of payroll deduction

Ø Portability of coverage once employee leaves

Ø Continuation of discounts upon departure from employer

Ø LTCi is a non-inflationary employee benefit where premiums are fixed to the age at enrollment and do not increase each year due to older age or health problems

Ø LTC compliments retirement planning and provides wealth preservation

Factors that determine policy pricing:

Ø Your age

Ø Your health

Ø Amount of daily or monthly benefit

Ø Elimination period

Ø Benefit duration

Ø Optional riders