Middle class employees have the most to gain from long-term care policies
By Andrew Weiland, of SBT
As the baby boom population grows older, more businesses are offering long-term care insurance as a benefit for their employees.
According to the most recent data provided by the American Association of Health Plans/Health Insurance Association of America (AAHP-HIAA), 4,776 employers offered group long-term care insurance plans in 2001, an increase of 20.7 percent over 2000 and an increase of 46.8% over 1999.
"I am gathering data for 2002, and it will easily exceed 5,000 (employers offering long term care insurance)," said Susan Coronel, long-term care director for the AAHP-HIAA.
"We’re starting to see more employers offering a minimal-type benefit," said Michael Noonan, general agent for Cyganiak Planning, a Brookfield financial planning and insurance agency. "It’s getting more and more popular because everybody has experienced some scenario where they have a parent or a grandparent who has needed long-term care and they’ve seen the cost."
Long-term care provides assistance for people who no longer are able to conduct basic everyday living activities on their own. Long-term care insurance helps cover the costs of a nursing home, assisted living or home health care.
The national average cost for a resident to live in a nursing home is about $66,000 a year, according to a survey by Metropolitan Life Insurance Co.
Statistics indicate that there is a one-in-two chance of people needing some form of long-term care after the age of 65, says Ralph Bultman, president of Bultman Financial Services, Brookfield.
Not just for nursing home care
Many people equate long-term care with nursing home care, Bultman notes. However, he says, nursing home care is only one type of long-term care. "Home health care is usually preferred. In the spectrum of care, there is also assisted-living care and adult day care."
Long-term care insurance is the fastest growing workforce benefit, said Eileen Gillespie, long-term care specialist with Northwestern Mutual Life Financial Network, Milwaukee.
For some employees who wonder how they will pay for long-term care if they need it, long-term care insurance is becoming a more attractive benefit.
"We know from the results of surveys that the American workforce is more concerned about long-term care expense than retirement savings," Gillespie said. "We know it’s a hot button issue for the workforce. Employees that have access receive it very positively. It’s a well-received value-added benefit."
Jeff Penisten, a long-term care, disability and life insurance sales consultant for R& R Insurance Services, Waukesha, said long-term care insurance is becoming more popular.
"I see the increase more in individual policies," he said. "It’s increased in sales every year. As more and more people discover there is no other alternative for payment for this type of coverage, as well as when they discover the cost of long-term care."
Businesses offering long-term care insurance to their employees can use the benefit as a recruiting tool, Gillespie said.
Younger workers may not be interested in long-term care insurance, but many older, highly skilled and experienced employees are, Gillespie said. Employers who offer long-term care insurance have an advantage when trying to recruit or retain those highly experienced employees, she said.
Tax advantages
Long-term care insurance also includes significant tax advantages for both employers and employees. Premiums paid by a C corporation employer for employees are fully tax deductible. Those premiums do not count as taxable income for the employee, which makes long-term care insurance an even more attractive benefit for them.
C corporations can also deduct the long-term care insurance premiums paid for the spouses of their employees, even if the spouses are not employed by the company.
Some small business owners take advantage of that provision to get their own spouses covered by long-term care insurance, Gillespie said. Typically, businesses do not pay for the long-term care insurance premiums for the spouses of their employees, but that is the company’s option.
Employees also receive the benefits from long-term care insurance tax-free. The employee is required to report no income when the premiums are paid or when the insurance benefit is received.
"The tax benefits are huge," Noonan said.
It may be possible for a 55-year-old executive to receive a paid-up LTCI contract as a tax-free benefit at retirement age 65, according to Bultman.
"The way to accomplish that is to have a written LTCI plan funded with a 10-payment policy," Bultman said. "The benefit can be made even more valuable if the executive’s spouse is included in the plan," he said.
Deductibility limitations
"Unfortunately, the deductibility of LTCI is not so simple for self-employed individuals and owner/employees of limited liability companies, partnerships and subchapter S corporations," Bultman said. "Payments for a tax-qualified policy purchased by a self-employed individual are treated as medical insurance premiums with the same maximum deductible limits as those for individual taxpayers."
For all practical purposes, owners of LLCs, partnerships and subchapter S corporations are treated as self-employed when it comes to deductibility of LTCI premiums, according to Bultman.
"Primarily because of these maximum deduction limits, the deduction is less than for an employee of a C corporation," he said "However, because LTCI is deductible on line 30 of form 1040 for self-employed, the deduction is greater than under the personal medical expense rules," he said.
Medicaid not the answer
The federal government is offering the tax incentives because public officials realize Medicaid will not be able to provide adequate long-term care funding for the aging baby boom population, Noonan said.
"The government is telling us we’re not going to be able to pay for this," he said "They’re trying to make (long-term care insurance) affordable by providing the tax benefits," said Noonan.
Bultman’s information shows that approximately 25% of all long-term-care costs are paid out of pocket by individuals and their families. Only about 14% are paid by Medicare, with Medicaid picking up most of the balance of the long-term health-care costs.
"How long can Medicaid continue to foot this bill? Probably not much longer, based on the fact that many states are currently running large deficits," Bultman said.
Coverage can extend to other family members
Employees also can provide access to their company’s long-term care insurance plan to their parents, in-laws or other family members. Those premiums would not be paid by the company. However, those family members can take advantage of discounted premiums, available through the company’s plan, which are typically lower than they could get on their own, Bultman, Noonan and Gillespie said.
In some cases, healthy employees can get better insurance rates on their own, rather than through their employer, Penisten said.
Care issues affect work
Employers benefit when the family members of their employees have access to more affordable long-term care, Gillespie said. Employees who have to provide care for a family member who does not have insurance and cannot afford long-term care are often forced to miss work, avoid work-related travel or decline promotions, she said.
"We know the American workforce is impacted by having to be a caregiver for a family member," she said. "If you’ve already got the responsibility with home, family and being a caregiver, most people will look at that and say, ‘I can’t do justice to a new position, even if it’s an advancement. I can’t handle any more than I have now.’"
Bultman noted the changing demographics of the nation.
"Some commentators believe that caring for parents will be a bigger employee benefit issue in the next few decades than childcare is today," Bultman said. "A great deal of productive time will be lost due to the need to take care of loved ones. LTCI is not designed to lessen the time spent with loved ones. It is designed to increase the quality of the time spent with them."
Employers who offer long-term care plans can help relieve their employees of the burden of providing daily care for a family member and allow them to focus more energy on work.
"It can have a bottom line impact for the employer," Gillespie said. "It’s not just adding another feel-good benefit."
Unlike health insurance, long-term care insurance is not subject to discrimination testing in the workplace. That means it does not have to be offered to all employees.
An employer can choose to offer it just for certain job classes. That is one way the employer can target the benefit for jobs typically held by older, experienced employees who value the long-term care insurance benefit.
"It’s one of the hottest new benefits for guys sitting on the board of directors," Noonan said.
Businesses have the freedom to tailor long-term care insurance benefits to meet their needs.
"There’s great flexibility in dispersing it to meet the business owners’ financial ability to support this as well as the business’ human resource goals and strategies," Gillespie said.
Many younger workers choose not to get long-term care insurance, because they assume they will not need long-term care until they are much older. However they may need long-term care if they are severely injured in an automobile accident or are stricken with a debilitating disease.
Magazine questions value of the insurance
A report in the November issue of Consumer Reports that analyzed long-term care insurance concluded that it is too risky and too expensive for most people.
Members of the long-term care insurance industry have fired back at Consumer Reports.
"I was dismayed and disappointed by the Consumer Reports story," Gillespie said. "They did a disservice to the American public."
Phyllis Shelton, president of LTC Consultants, of Nashville, Tenn., was interviewed for the Consumer Reports story, and criticized it after it was published.
"This article shows zero awareness of the stress that families suffer every day with home care giving and ignores all the statistics from think tanks like The Conference Board that project that elder care is almost ready to replace child care as the No. 1 dependent care need in America in the next few years," Shelton said.
"We stand by our report," said Consumer Reports editor Margot Slade in a letter to the Long Term Care Forum online newsletter. "And we take issue with (Shelton’s) assertions."
Noonan said the middle class benefits the most from long-term care insurance. Extremely wealthy people may be able to afford the cost of long-term care. Lower income people will receive government assistance to pay for long-term care. However, middle class people without insurance often see their life savings depleted by the costs of long-term care, he said.
"The reason people buy this stuff is to protect assets," he said.
Nov. 28, 2003 Small Business Times, Milwaukee
