Employer-offered long-term care insurance is becoming more important
Many employees are saving for retirement, but relatively few have a plan to protect their savings from the cost of an extended illness or degenerative conditions such as Parkinson's disease or dementia.
For that reason, more employers interested in their employees' financial wellness are offering long-term care insurance (LTCI), making it an employee benefit that is growing in importance.
It's a win-win for employers and employees. For employers, up to $33 billion in productivity is lost from employee absenteeism and schedule changes due to caregiving responsibilities. For employees, it's a matter of financial peace of mind.
According to LongTermCare.gov, someone turning 65 today has almost a 70 percent chance of needing some type of long-term care services and supports in their remaining years, usually at home.
The ever-climbing cost of long-term care is a concern for many employees, some of whom are already assisting aging parents. The 2021 Genworth Cost of Care survey reports that a semiprivate room in a nursing facility has a median monthly cost of $7,900 a month, and part-time home care services (about 40 hours a week) cost about $5,000. With inflation running higher than 9 percent, those costs will rise sharply.
In addition, most employees say they would rather obtain LTCI through their employers than from a less-than-expert source of long-term care insurance, such as a broker offering all forms of insurance.
There can be tax advantages for employers and employees, too, as LTCI premiums are deductible and benefits are tax-free up to $390 a day as of 2022. Unlike health insurance, an employer can decide who qualifies for an LTCI program based on factors such as tenure with the company and level of management.
Today, most employer-based LTCI is offered through individual contracts -- the so-called "multi-life/LTC combo" or "hybrid" plans -- rather than a group contract. Underwriting varies by carrier and specific plan offered. There are now a few carriers offering guaranteed-issue policies.
Technology allows ease of management for these individual contracts. An employer considering a long-term care insurance benefit should make sure that the carrier they choose offers a turnkey solution to education, enrollment and management.
Some plans are available to employees as young as 30. Why would someone still in their prime working years be interested? There are several reasons:
LTCI premiums rise exponentially once an individual reaches their 60s. Joining an employer-offered LTCI plan in their 40s, or even 30s, is one way an employee can hedge their bets that the insurance won't become unaffordable. Hybrid plans guarantee the rates because they combine life insurance with a long-term care rider and offer more paid-up options.
Traditional health insurance and Medicare don't pay for long-term care, so many people find themselves in financial straits if they need it. It's a bit of a Catch-22, because the older someone is, the more difficult it is for them to meet LTCI underwriting standards. Since long-term care insurance companies do not fall under the Affordable Care Act, they are allowed to base their decisions on preexisting medical conditions. Companies are even taking family history into consideration. For example, if there's early-onset Alzheimer's in the family, an insurance carrier could limit benefits or decline to even offer a policy.
Most LTCI benefits are paid out to older people needing care for dementia. However, there are many conditions that could require long-term care at any age. A younger person, for example, could have a long convalescence following an accident, or develop cancer, MS or Parkinson's. And it's important to remember that, although dementia is typically a disease associated with aging, some 200,000 people younger than 65 develop serious memory and thinking problems far earlier in life than expected.
People associate LTCI with nursing homes, but 40 percent of paid claims in 2020 were for at-home care, according to Milliman, Inc., the international actuarial and consulting firm based in Seattle. Home care could include everything from coordination of care to help with the six activities of daily living (bathing, dressing, eating, transferring, toileting and continence).
More and more employers are seeing the benefit of offering LTCI a benefits option available to employees and spouses. Through employer plans, a greater number of Americans will have access to LTCI at a younger age when it's most affordable.
• Murray Gordon is founder and CEO and Brian Gordon, CLTC, is president of Bannockburn based Murray A. Gordon and Associates, Ltd. (MAGA), a nationally recognized long-term care insurance (LTCI) specialist since 1975. They can be reached at (847) 940-8866 or www.magaltc.com.