The Essential Guide to Group Long-Term Care Insurance
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Introduction
Why Employers should offer LTC Insurance as a benefit
How long-term care insurance works — and typical premiums
Standalone versus combination Life/LTC plans
Product Options — Group plans versus multi-life options
Recommendations for Employers with current in-force
Group LTC plans
Voluntary LTC plans and increasing enrollment
The tax treatment of LTC Insurance
Health Savings Accounts and LTC Insurance
Executive LTC plans
Is your company a good candidate for offering coverage?
Most employees planning for retirement have three major concerns - an unexpected health event, outliving their income, and passing away financially unprepared. Life Insurance programs and retirement savings programs such as 401(k)'s can address two of these major concerns. Many serious health events are covered by Medicare or supplemental private health insurance policies. However, there is a large gap in most employees personal planning - the possibility of needing help due to the effects of aging or extended healthcare.
Conditions such as Alzheimer's, Parkinson's Disease, Stroke, or simply just getting older can lead to needing help with care. Care can take place at home, an assisted living facility, or a nursing home - and it can be expensive! Since Medicare won't pay the costs, it has to be funded through savings, Medicaid, or long-term care insurance.
A long-term care insurance plan can't prevent Alzheimer's or other chronic conditions that result from disease or getting older. However, it can help the family tremendously at time of crisis, by offering access to a pool of money that can be used to pay for care. For employees who plan ahead and buy LTC coverage in their working years they can typically buy comprehensive long-term care (LTC) coverage for around $100 per month. And buying through an employer offer includes several advantages we will discuss in this report.
Whether you are an employer or a benefits professional, you may have heard that group LTC Insurance is no longer available to employer groups. That is not the case! Several LTC Insurance products are available in the marketplace, from traditional LTC coverage to policies that combine life insurance and long-term care insurance in one policy. Read on to learn more!
Long-term care insurance is a product that has been available for over 30 years, but only a small percentage of those who say they need coverage have a plan. One reason could be that a LTC Insurance plan is not available through their employer, despite the desire of employees to have this option. In fact, according to 2017 survey of 1,200 adults conducted by Genworth Financial, four out of five Americans want the option of buying long term care insurance at work, 68% of survey respondents would prefer to purchase LTC Insurance through an employer compared to a financial professional.
There are many advantages to an employee buying LTC Insurance through the employer:
Employers create thoughtful programs that help employees prepare for retirement, but the best plan can be devastated by a long-term care event. Offering employees long-term care coverage can help employees protect their retirement income and lifestyle. Want to know how LTC Insurance works? Keep reading!
At it's basic level, the concept of LTC Insurance is just purchasing access to a pool of money when care is needed. Buyers select how big that pool of money is initially and decide whether the pool will automatically increase over time to keep up with inflation. LTC Insurance will pay for care in a variety of settings, based on the policyholders individual needs.
Group Long-term care Insurance programs come in two flavors - traditional "standalone" health-based LTC Insurance and group life insurance that includes a long-term care insurance benefit. There are some differences in how these plans work, both products will pay once policyholders need assistance with either two of six activities of daily living or have a cognitive impairment requiring supervision. The benefit received by the policyholder is typically received tax-free for expenses incurred for care giving. Both policies also allow for care to be received at home, in assisted living, or at a skilled nursing facility.
The difference is that plans that combine life insurance will pay a long-term care benefit by allowing early access to the death benefit. Some products also include an extension of benefits rider once the initial benefit has been exhausted. If no long term care is needed, then the plan will pay a life insurance benefit to a family beneficiary upon death. Let's look at the advantages and disadvantages of each approach:
Challenges of Standalone LTC
For many years the only way for employers to offer standalone long-term care insurance was using group plans - a master policy was issued to the employer and each employee was issued certificates of coverage. Participants in this market included Unum, John Hancock, Metlife, Prudential, CNA and Aetna. Plans were offered with guaranteed issue underwriting, and premium rates were designed to remain level for the lifetime of the certificate holder.
Group coverage allowed for efficient census driven enrollment of employees, payroll deduction of premiums and coverage based on the situs state of the employer. Although nearly all group carriers no longer offer coverage to new employer groups, millions of American employees and retirees still have group LTC benefits through these insurers.
Now, most long-term care insurance sold at the employer is individual contracts - so-called 'mult-life' LTC. Why did the market for standalone LTC move from group contracts to individual contracts issued at the worksite?
Over years numerous employers, both small and large, implemented group LTC plans for their employees. Some of the carriers that used to offer group coverage but are no longer writing new groups include Aetna, CNA, John Hancock, MedAmerica, MetLife, Prudential, and UNUM.
These programs provide valuable benefits for employees and retirees, but they can present employers some challenges. Here are some of the issues:
Employers in this position may need help with:
More and more employers are offering voluntary insurance products including long-term care insurance. Long-term care insurance is unique in that it both augments a medical plan and also helps protect retiree savings and investments.
Once an employer has decided voluntary LTC fits into their benefits offering they'll need to work with their benefits specialist to design an effective communication and enrollment strategy. Here is a broad overview of the key aspects of a successful voluntary offering:
The above represents a list of the basics of enrollment success and each piece is part of the puzzle. In order to really encourage planning, read on....
We all have unconscious and conscious biases that direct our decision making, especially with financial decisions such as retirement and healthcare planning. As someone who works in the financial services and insurance industry you've heard about how the evolving field of Behavioral Finance is changing the way benefits are communicated. Behavioral Finance is a relatively new field combines behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions.
As an example, for years 401(k) plans lacked participation that would have been expected with a benefit that often provided "free" money. The breakthrough in 401(k) participation came when more employers engaged in automatic enrollment for employees. Much of the thinking behind these "nudges" became the basis for the field of behavioral finance, led by research from economists like Richard Thaler who won the Nobel Prize in 2017 for his work.
Although auto-enrollment for long-term care coverage would be ideal, not many employers would be willing to do this on a voluntary basis. However, there are several lessons that behavioral finance teaches us that can help increase participation plan in group LTC Insurance plans. Here are some of the most powerful:
Most of us need guidance when purchasing voluntary products. Traditionally the most used enrollment technique has been face to face enrollers meeting with employees at the worksite.
Although this method continues to be effective and used in some voluntary long-term care settings, there are some challenges as well:
The good news is there are alternatives. The rise in online buying has meant people feel comfortable researching and buying products online. Helpful online coaches can help guide a decision, from plan design options to applying for coverage.
A successful long-term care insurance enollment won't get 100% participation - but it should try and achieve 100% awareness. A robust educational campaign to build awareness includes:
With the passage of HIPAA in 1996, long-term care insurance was given similar tax treatment to health insurance - deductibles to businesses, premiums paid are not taxable to employees, and benefits for qualified long-term care services are income tax free. This unique and preferential tax-treatment is why LTC Insurance is an especially attractive group and executive benefit.
Here's an overview of the tax treatment of long-term care insurance:
Benefits for LTC Insurance are received tax free - the only exception is for "cash" style benefits, which are tax-free up to a certain daily amount.
Here's a helpful overview of the tax advantages of LTC Insurance, from the most favorable to the least.
Note: This does not constitute tax advice. Nothing contained on this webpage represents a guarantee that amounts paid for or received through LTC insurance are excludable from gross income for tax purposes. This material is provided for general informational purposes only. Consult with your LTCi advisor, attorney, accountant or tax advisor regarding tax implications of purchasing Long Term Care Insurance
The growth in Health Savings Accounts over the last several years has been tremendous. More employers and employees are becoming comfortable with the plans and the flexibility they provide.
Long-term care insurance premiums don't qualify as Section 125 pre-tax eligible. However, as more employees get HSA's and build balances, they will find that long-term care insurance is a natural fit. Health Savings Accounts can be used to pay LTC insurance premiums for employees and their spouses up to the annual tax limits shown above. As an example, if a 61 year old employee and same aged spouse both have LTC Insurance plans with a combined annual premium of $5,000 they can take that amount out of their plan to pay for the premiums using "pre-tax" dollars. That's because the combined limit for couples between the ages of 61 and 70 is $8,320.
What if an employee isn't able to pay their full LTC insurance premium from their HSA due to the limit associated with their existing age? The good news is that once they advance to an older age range, they can recoup the shortfall from previous years. For example, if an employee purchased LTC with a premium of $2,000/year when they were age 60, they would only be able to use $1,560 from their HSA and would need to pay the remaining $440 with after tax dollars. The next year, at age 61, their limit goes up to $4,160. They would be able to pay the entire $2,000 premium for that year from their HSA, as well as recoup the $440 they paid out of pocket the previous year.
Since employers often provide funds to HSA for employees, those employee who wish to purchase LTC Insurance have a nice pre-tax benefit.
Executives can benefit greatly from a long-term care insurance plan. Often executives are at an age in which they are dealing with aging relatives while paying for college costs for their own children - a "sandwich" that creates stress and anxiety. Adding LTC coverage to an executives benefit offering has several advantages, including:
Offering Long-Term Care Insurance in the workplace provides numerous benefits to employees. Here are a few:
Finally, employees offered a long-term care plan buy earlier than the general buyers. That's critical because buying earlier has multiple benefits. LTC Insurance can make a huge difference in a families life.
One of the greatest risks to a confident retirement is healthcare. At LTCI Partners, we provide insurance solutions to help advisors and their clients manage this risk.
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