Looking beyond offering the standard health insurance and retirement plan is a great start to building a completive benefits package as an employer. Long-term care (LTC) insurance is one option to help enhance your benefits package that requires a closer look.
Extended care can quickly become a major financial burden to many individuals and families as medical costs continue to rise. Including a LTC sponsorship in your benefits plan is a good way to help combat this stress, which in turn affects work productivity and quality. It also helps boost retention and attract new job candidates. It is critical, however, to look into all the details first.
Two Common Approaches
Employers may sponsor LTC insurance as either traditional standalone policies or through life-insurance-based products that include LTC benefits or riders. Although policy terms vary, qualified coverage generally pays benefits when a covered party is certified by a licensed health care practitioner as chronically ill.
This can mean, for example, that the person is expected to require substantial assistance with at least two of the six activities of daily living for at least 90 days, or that the individual has severe cognitive impairment requiring supervision. For employer-sponsored policies, the employee who enrolls in the benefit is generally the covered party, though some policies may allow spouses or others to obtain coverage.
Under either the standalone or life-insurance-based approach, care may be provided in:
- The covered party’s home,
- An assisted living or nursing facility, or
- Another covered setting, depending on the policy’s terms.
But there’s a key difference between the two. Standalone LTC policies typically don’t provide a death benefit unless optional features are included. In contrast, life-insurance-based LTC products may include cash value and a death benefit that can be reduced or accessed to help pay for covered LTC, depending on the policy design. If LTC benefits aren’t used, a death benefit may remain available for designated beneficiaries. These products also sometimes offer optional features, such as riders and flexible payment structures.
In either case, qualified LTC coverage generally receives favorable tax treatment. Depending on plan design, premiums may be paid by the employer, the employee, or shared between both. Employer-paid premiums are typically deductible as a business expense, and employees usually receive benefits free of federal income tax, subject to applicable IRS rules and limits. (Note: Qualified LTC insurance generally can’t be offered as a pretax benefit through a Section 125 cafeteria plan, so employee-paid premiums are typically funded on an after-tax basis).
Why Employees Value It
Employees may value LTC insurance as a fringe benefit for several reasons. First, employer-sponsored coverage often offers more competitive pricing than employees would find on their own. Individual LTC policies can be expensive, so access to a workplace-sponsored option may make coverage more attainable for some employees.
Employer-sponsored coverage may also offer underwriting advantages. In some cases, insurers use simplified underwriting for group policies, with some providing broader enrollment opportunities than employees would find on the individual market. However, these features vary by insurer and policy.
Finally, buying LTC insurance through the workplace may be more convenient than shopping for coverage independently. As the employer-sponsor, you’ll handle much of the upfront evaluation of providers and plan options, and a payroll deduction arrangement may make premium payments easier for participants.
Worth Considering
LTC insurance may not be a viable employee benefit for every organization. However, it’s worth considering if you want to expand your benefits package and have a workforce likely to value it. Contact us for help determining whether sponsoring a policy for your employees would be a sound financial and strategic move.
