Should Your Benefits Program Feature LTC Insurance?

Individuals usually seek long-term care insurance (LTCI) to protect themselves and their assets from potentially catastrophic costs as they age. The problem is that LTCI is generally expensive and often difficult — or even impossible — for individuals to obtain. Increasingly, employees are asking employers to provide group-term LTCI as a fringe benefit. Your organization may want to consider offering it to attract and retain talent in a competitive hiring market.

Toll of Long-Term Care

By now, most employees recognize the need for retirement savings and participate in 401(k) and other qualified retirement plans when they're offered by their employers. But LTCI may be a lower priority or simply perceived as unaffordable to most people. Yet serious illness or injury — including dementia, strokes, broken hips and knees, and general aging — can result in people requiring basic care assistance for years. Of course, LTCI can't prevent or alleviate these conditions, but it can help fill in health insurance gaps.

According to the 2022 Milliman Long Term Care Insurance Survey, new annualized LTCI premiums from worksite sales tripled in 2021. This is 9.3 times as many worksite sales as insurance providers made in 2020. Although some insurance companies have exited this market niche in recent years, LTCI products are still available for employers who want to offer them as an employee benefit.

2 Types

LTCI provides participants with funds when long-term care is needed. Policy buyers determine the amount and term of the policy and whether its value will automatically increase over time to help keep up with rising care costs and inflation.

There are two basic types of group LTCI plans. The first is a traditional "standalone" policy. The second is a hybrid policy that combines a long-term care benefit with group term life insurance with a death benefit. Although there are some differences in the details, both types provide benefits when a policyholder:

• Requires assistance with at least two of six activities of daily living (bathing, dressing, eating, transferring, toileting and continence), or
• Has a cognitive impairment that requires supervision.

With either type of policy, care may be provided in the policyholder's home, in an assisted living or nursing facility, or in a comparable setting. Generally, LTCI benefits received for qualified long-term care expenses are tax-free to policyholders.

But there's a key difference between the two plans. If you have a standalone policy and don't use the benefits, you "lose" them. Hybrid policies with a life insurance component, on the other hand, build cash value and may provide early access to the death benefit. If long-term care is never needed, the death benefit is paid out to the policy's designated beneficiaries. These policies may offer other options, including riders and flexible payment plans.

Employee Appeal

LTCI coverage can be appealing to employees for several reasons:

• ‍Competitive premiums. Employees who look for LTCI on their own often find premiums to be cost-prohibitive. But group plans — which spread and, therefore, reduce insurance risk — typically offer discounted premiums. Some employees may consider them more affordable.‍
• Favorable underwriting. Insurers streamline underwriting for group plans. Individuals who try to obtain an LTCI product must undergo a health evaluation, and many are deemed uninsurable as a result. Group plan requirements are generally less stringent, and insurers may offer open enrollment to all members of the employee group.‍
• Gender equality. In the individual markets, insurers typically charge higher premiums for women than men. On average, women live longer than men and thus potentially require more care or longer periods of assistance. But policies obtained through an employer's plan are gender-neutral.‍
• Convenience. Simply put, it's easier to buy LTCI through an employer's plan than it is to engage with an insurer on your own. Employers do much of the work of vetting providers and negotiating premiums and may also provide materials that can help employees make long-term care decisions. Finally, premiums of standalone policies generally are deducted from employees' paychecks.

Making the Decision

Historically, employers that offered LTCI as a benefit offered standalone group coverage. But multi-life policies with individual contracts have been gaining in popularity because they can provide greater flexibility and more efficient pricing and underwriting.

To decide whether to offer this type of insurance to employees, contact your financial or payroll advisors. They can help you perform a cost-benefit analysis.