Long Term Care Insurance

Long term care insurance is a newer employee benefit used to attract and retain top performers. To date, a growing number of companies offer this benefit on a voluntary basis to allow employees to pay the full cost through payroll deduction. (NOTE: It is wise to check with your tax advisor or insurance agent for specific restrictions and rules that may apply before purchasing a policy or offering one to your employees).

What is long term care?

Long term care (LTC) refers to a wide array of medical care, personal assistance and social support services for people who are physically or mentally unable to independently care for themselves for an expended period of time. This care is provided in a nursing home, assisted living facility or in one’s home. Individuals needing LTC require assistance performing basic activities for daily living or suffer from severe cognitive impairment. Generally, the disabilities requiring LTC are caused by accidents, illnesses or advanced age.

What is long term care insurance?

To combat the high costs of LTC, long term care insurance protects individuals against incurring large out-of-pocket expenses by paying affordable premiums. There are two different types of long term care insurance policies available:

Individual long term care insurance; and
Group long term care insurance.

Individual policies are generally purchased by people whose employers do not offer a group policy or those who feel that they need to supplement their employer’s policy to obtain the most coverage possible in the event they need long term care assistance. If employers and associations offer long term care insurance to employees in the form of a group long term care insurance policy, they may not offer the same level of protection afforded by individual long term care insurance policies in every state. Prior to purchasing a group policy, it is wise to compare the level of protection offered versus the level of protection guaranteed in comparable individual policies. Long term care insurance policies should also clearly state whether they are individual or group policies.

How does long term care differ from disability insurance?

Although long term care insurance evolved from income disability insurance, major medical insurance or disability insurance does not protect a policy holder in the same way. Unlike a health plan that will cover 30 days of recuperative time, a long term plan will cover two years or more. Beyond that, disability insurance replaces only salary at the time of the injury, and not the care. The policy holder will then have to pay out-of-pocket for any ongoing long term care due to his/her accident or injury.

In addition, Medicare should not be considered a resource for handling any substantial long term care expenses. This program reimburses the qualified user for a maximum of 100 days, with the average repayment of expenses being a mere 28 days. This will not suffice, as long term care can be extremely expensive.

How are long term care insurance policies designed?

A long term care insurance policy covers any or all of the following types of services:

Nursing home coverage;
Assisted living facility coverage;
Adult daycare center coverage;
Home health care coverage; and
Personal care coverage.

Most long term care insurance policies pay a daily maximum benefit, and a lifetime maximum benefit. Actual benefits are chosen at the time the policy is purchased. The daily maximum benefit for most long term care insurance policies is usually less than the cost of one average day of long term care service.

Most carriers offer two different types of inflation protection:

Fixed percentage increases to daily benefits each year; and
Compound increases to daily benefits by a fixed percentage each year.

In August 2000, the National Association of Insurance Commissioners (NAIC) adopted new state standards designed to help protect consumers whose premiums increased beyond a specific threshold amount. As of 2003, only 21 states had adopted the provision, but several others have indicated intentions to do so.

What tax implications are associated with long term care insurance?

The Health Insurance Portability and Accountability Act (HIPAA), provides some federal income tax advantages for Tax-Qualified (or simply qualified) long term care policies. Some of these tax advantages include:

Deducting premiums up to a maximum limit (provided the taxpayer itemizes deductions and has medical costs in excess of 7.5 % of adjusted gross income).
Payments for a tax-qualified long-term care insurance policy purchased by a self-employed individual or sole proprietor are currently treated as medical insurance premiums with the same limits as those for individual taxpayers.
Tax deductible insurance protection can be purchased for employees and owners. Company-paid policies can cover spouses and retirees. Premium payments for a tax-qualified long term care policy purchased for a partner or owner (two percent plus shareholder) are subject to the same rules as self-employed individuals.
Premium payments for policies purchased for a non-partner/non-owner (less than two percent shareholder/employee) are fully deductible as a business expense. The same is true for their spouse or tax dependents.

Where can I get more information about group long term care insurance?

For more information on long-term care insurance, access the Life and Health Foundation for Education http://www.life-line.org or America’s Health Insurance Plans http://www.ahip.org.

TriSure welcomes the opportunity to help your organization exmaine its plan designs and make recommendations for improvement. Call our toll-free benefits line at
800-849-8545.