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Long-Term Care Insurance Helps Protect Retirement Funds

The National Retirement Risk Index published by the Center for Retirement Research at Boston College found 44 percent of U.S. households were “at risk” for financial insecurity during retirement. When it considered the effect of projected healthcare costs, that percentage rose to 61 percent…and again to 65 percent when it considered long-term care costs. Many of your baby boomer and Gen-X employees risk a retirement funding crisis. Long-term care insurance (LTCI) can help. 

About 70 percent of people over age 65 require some type of long-term care services during their lifetime. Among those aged 85 or older, more than half (about 55 percent) require long-term care—the personal assistance that enables them to perform activities of daily living, such as eating, bathing, toileting and dressing, reports the U.S. Department of Health and Human Services. 

The cost of long-term care keeps increasing — currently, the average cost of a year in a nursing home exceeds $70,000. However, only about 8.05 million Americans had private long-term care insurance (LTCI) in 2010. 

As baby boomers get older, they are more concerned with their long-term financial security—an LTCI plan can help you retain these valued experienced workers. Interested in learning more? You have three basic options: 

  • True group plans. These plans are usually guaranteed issue (no qualifying health questions) for all full-time employees. With guaranteed issue, no employee is discriminated against if he or she has a disabling or potentially disabling condition. As a group plan, a select set of identical benefits can be offered to all employees no matter which state they live in. Benefits other than the select set may be available but usually require medical underwriting. True group plans can often be converted to an individual plan with similar benefits when the employee leaves the group.
  • Modified guaranteed issue. Modified guaranteed issue means there is no medical underwriting, but employees must answer one or more qualifying questions to eliminate disabled or very sick workers. For groups with low participation, rates for modified guaranteed issue plans are generally less than true group rates. Because modified guaranteed issue programs issue individual policies, the employee can keep the policy and rates when he or she leaves the group.
  • Individual plans with group discounts. These are identical to plans that are offered to the public but the premiums are discounted from five to 15 percent for members of the group. The employee can choose any of hundreds of benefit options since everything is medically underwritten. 

Key components of the LTCI policy include: 

  • the daily benefit, a maximum dollar amount
  • the benefit period — usually two to six years or “lifetime”
  • the elimination period — usually 20 or 100 days, during which employees must pay LTC costs out of pocket. 

The higher the daily benefit and the longer the benefit period, the more you will pay in premiums. You can control your premium costs by selecting the longest elimination period you can afford.

Other features to look for: 

  • an inflation rider (optional). This increases the daily benefit amount as costs rise, protecting your employees from the effects of inflation.
  • a waiver of premium (optional). Many policies include this option, which waives an insured’s premium payments when he or she is receiving long-term care services, usually after an elimination period of one to several months.
  • pre-existing condition clauses. If you buy a program that is not guaranteed issue, insurers might put pre-existing condition clauses in the policies of those individuals with pre-existing health conditions. Typically, these clauses eliminate coverage for up to six months AFTER policy inception for long-term care services caused by any condition for which the insured has received medical advice or treatment from a licensed provider within the six months BEFORE the start of the policy. From a practical standpoint, however, insurers use pre-existing condition clauses less frequently in LTCI policies than in other types of health insurance, because the insurer would prefer not to sell a policy to someone who might need long-term care within six months.
  • guaranteed renewability. A guaranteed renewability provision allows an insured to renew coverage no matter what his/her current health condition. This feature is extremely important, because it ensures that the LTC coverage will be available when needed.  

Most LTCI policies exclude coverage for care required due to conditions covered by workers’ compensation; drug or alcohol addiction; war-related injuries or illnesses; treatment paid by government; and injuries that are self-inflicted. Employees who pay LTCI premiums receive a tax deduction, while company-paid premiums are deductible for the employer and tax-free for the employee. Individuals can pay LTCI premiums from a health savings account (HSA), up to certain limits. Premiums paid through a cafeteria plan or FSA, however, are taxable. 

For more information on how you can provide your employees with this valuable benefit, please call us. 

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