One of the biggest threats to retirement assets is the out-of-pocket cost of long-term care (LTC). While 51 percent of people see LTC as a financial concern and 70 percent of Americans 65 or older will need LTC assistance at some point in their lives, only about 8 percent of people of buying age and income own LTC insurance (LTCI), according to recent surveys and government data. Why is there such a disconnect, what can employers do to help solve the problem, and how does LTCI provide one more way to attract and retain top talent?
LTC is a growing concern because of escalating costs and because people are living longer. As they age, people become more likely to need help with two or more of their routine daily activities, such as dressing, eating, bathing, walking, toileting or getting in and out of a chair or bed. The need is more likely to impact women than men due to their longer life spans. But it is important to note that LTC is not just for the elderly: 40 percent of those receiving LTC services are between the ages of 18 and 64, according to the Robert Wood Johnson Foundation.
Despite the need, most people do not purchase LTCI for a variety of reasons, including cost, belief they will not need LTC services, uncertainty about when to purchase a policy, and lack of complete information provided to them. People usually become more motivated to seek coverage after a family member needs a nursing home or other LTC assistance and they become aware of the high costs ( average of $91,000 in 2015, according to a 2017 study by Genworth). Or, employees become more motivated after they have a medical issue that creates a concern. However once a significant medical issue occurs, it may become more difficult or very expensive to obtain coverage. Employer-provided health and disability insurance policies do not cover LTC costs.
Employers can help significantly by doing some of the vetting of LTC carriers and products and making them available on a voluntary, employer-paid, or employer-subsidized basis. Studies by LIMRA, an industry research firm, show that 59 percent of employees prefer buying insurance at their workplace. An employer-sponsored program can be offered to all employees as well as their family members. Spousal and marital discounts may apply and the policies are generally 100 percent portable, meaning the employee can choose to take over premium payments and retain the LTCI upon separation from the employer.
If the employer pays for the coverage for 10 or more qualifying employees (possibly as a perk for key employees), the program may qualify for certain additional advantages, including simplified underwriting, which typically results in 90 to 95 percent approval, a standard health class for all approved applicants, a unisex rate structure and reduced premiums. Furthermore, the bank has the option of purchasing bank-owned life insurance (BOLI) to offset and recover any expenses it incurs in providing LTC benefits.
Current tax rules encourage the purchase of LTCI, with the largest tax benefits afforded to employer-provided policies. Generally, employer-paid premiums are deductible to the employer while being excluded from the employee’s taxable income. In addition, the employee is not taxed on LTC benefits received, up to certain limits.
As co-author of this article and someone with two parents who needed nursing home care, I (David Shoemaker) can attest to the value of LTCI and am grateful my parents purchased it while they were young. LTCI allowed for better care for them and kept their retirement assets mostly intact.
By offering LTCI, the bank can fill a need in its benefits portfolio, making it easier to attract and retain top talent.