• 81% of employees view long-term care insurance as very/somewhat Important, but only 25% of employers offer it. • New state legislation may expand the LTCI market and result in coverage for more people. • More employers are viewing LTCI as an essential benefit that supports their workforce.
Long-term care insurance (LTCi) has long been a valuable tool for financial security, helping ensure families have the resources to pay for care when their time comes, but it has been underutilized for several reasons. Some insurance companies left the market and from 2014-2019, fewer employers offered it. However, group LTCi is experiencing a resurgence as employers and employees recognize the need for comprehensive long-term care planning.
Despite increased availability and interest in these products, much still needs to be done to expand the number of people purchasing LTCi, either individually or through their employers. According to a survey from the Transamerica Center for Retirement Studies, 81% of employees view long-term care insurance as very/somewhat Important, only 25% of employers offer it.
A Little History
When long-term care insurance was originally designed in the 1970s, there was no data to determine when people would file a claim or how long the LTC experience would be. As a result, the insurance was not properly underwritten to determine risk. Additionally, actuaries designed these policies with unsustainable benefit design — unlimited benefit periods, 5% compound inflation, and incorrect interest rate assumptions.
In the mid 2000s, a large number of policyholders filed claims concurrently. Between this financial drain, years of low interest rates and the 2007-08 market collapse, insurance carriers were faced with a decision to remain in the market or focus on other lines of business.
Government incentives can also help boost the viability of LTCi efforts. As a member of the National Association of Insurance and Financial Advisors (NAIFA) Legislative Working Group, I have been closely tracking state-level discussions on long-term care funding mandates.
The WA Cares Fund enables eligible Washingtonians to contribute a small portion of their income to the fund and when they need LTC services, they can access their earned benefit of up to $36,000. The program has gone through numerous improvements and last year, Washington voters pushed back on an initiative to challenge the law.
California and Minnesota are likely to implement legislation soon. In March, U.S. Congressman Tom Suozzi (D-N.Y.) introduced bipartisan national legislation, the Well-Being Insurance for Seniors to be at Home Act (WISH), to address our growing long-term care crisis.
“Right now, our country is facing a looming long-term care crisis. 10,000 Americans turn 65 every day; in five years, 6,500 seniors will turn 80 every day. Medicaid and nursing homes are already overburdened, and seniors have no other affordable options to pay for the care that they will need,” Suozzi said in a press release. “We need to handle this problem before it becomes a crisis, and I believe a federal catastrophic long-term care insurance program coupled with a robust private sector insurance market is the way to do that.”
Employers Shouldn’t Wait
“It would be a mistake for employers to wait until legislation happens because LTC needs are one of the most underprepared for financial needs that our society faces.” Mike Walker, a specialist in group LTC and president of the Voluntary Benefits Shop in Havre de Grace, Md., tells me. State-provided coverage would be just a piece of the overall solution for LTCi, he says, “and getting it through an employer-offered plan is the easiest way.”
An employer-offered plan “allows people to obtain coverage without medical underwriting or health questions and it truly is a great benefit of employment,” says Walker. “More employers are starting to view LTCi as an essential benefit that supports their workforce, reduces financial stress, and improves productivity.”
Steve Cain, an industry leader in group LTCi and managing partner of LTCi Partners, tells me that more and more employers are offering worksite LTC insurance as an employer-funded or voluntary benefit.
“Employers are looking to these products to help protect their employees’ retirement income and lifestyles,” Cain says. “It makes sense, as many Gen X employees have first-hand experience with Long-Term Care with their parents.”
Supporting Working Caregivers Boosts ROI
Group LTCi policies don’t only help individuals needing care; they also enables more family members to remain in the workforce. Caregiving responsibilities impact millions of employees, leading to lost productivity, absenteeism and career stagnation. The costs are also considerable for replacing employees who leave the workforce due to these strains.
I asked Joseph Fuller, a professor of management practice at Harvard Business School and a co-director of its long-term project “Managing the Future of Work,” why employers should offer benefits that address this crisis, including group long-term care insurance and caregiving benefits. “Workers of both genders report that they leave jobs frequently because they can’t reconcile their personal obligations, primarily as it relates to care,” he says.
His research shows that about 30% of workers have already left one job due to balancing work requirement with caregiving responsibilities — whether for parents, children, a sick spouse, etc.
“When that number grows to 50%, for those in the top quartile of compensation, it becomes very expensive to replace that person, and you don’t know if the new person you’re hiring will work out or not,” says Fuller “So, employers often do not connect the dots and fail to understand that a preventative investment of a caregiving benefit would have a terrific ROI.”
Cathy Sikorski, an elder-law attorney, speaker, and the author of four books on caregiving, reminds employers that “your employees are often juggling two jobs as a working caregiver, leading to lost productivity, absenteeism, loss of advancement and promotion,” she tells me. And she lets employers know that offering caregiving resources give them the opportunity to attract and retain highly desired employees and boost their return on investment.
Cathy also points out another advantage of proactively addressing caregiving challenges: Employers position themselves as forward-thinking and socially responsible organizations.
Nuts and Bolts
Group LTCi is based on a larger pool of lives than individual policies, which are based on gender and age. This allows carriers to price these policies more favorably. In turn, employers can offer higher-quality coverage at group-negotiated rates and discounts. Employers may also subsidize the premiums, further reducing the cost for employees.
Many group LTCi policies offer guaranteed or simplified underwriting. This allows employees who may not qualify for individual coverage due to health conditions to obtain long-term care protection.
Group LTCi policies are often portable, meaning employees can take their coverage with them if they retire or leave the company. Unlike group life insurance, departing employees do not need to convert the policy but are responsible for paying the premiums unless they have negotiated something different.
Employers and some employees may qualify for tax incentives when tax-qualified LTCi is offered as a part of a voluntary or employer-sponsored benefits package. Whether premiums can be deducted as a business expense depends on if the business is a partnership, LLC or subchapter S corporation. Subchapter C corps may take 100% deduction on the total premium paid. Each year, the IRS publishes LTCi Federal Aged-based Tax-Deductible Limits (see IRS Revenue Procedure 2024-40).
Getting Onboard
To increase participation rates, employers can provide a one-time off cycle open enrollment opportunity with fewer medical requirements. Off cycle enrollments occur at a different time than open enrollment for health insurance, which allows time for better education. Employees who do not participate in the one-time open enrollment period may enroll later but may not be offered all the same benefits. New hires may enroll after a window determined by their employer.
As a financial advisor, you can educate and encourage your clients — business owners and employees — and your firm about how to prepare for the realities of aging and long-term care. Group LTCi is an important tool for forward-thinking employees.
Noel A. Evans is a group long-term care insurance specialist, host of the What’s Your Plan? podcast on DCRadio, 96.3 HD4, and a legislative advocate. He is based in Washington D.C.
