Long-Term Care Insurance: Value-Added Benefit or New State Payroll Tax?

Viewpoints from Kerry Connor

Whichever aspect of long-term care insurance caught your attention—value-added benefit or new payroll tax—your EPIC team has the information and support you need.

Attendees at our recent Benefits Curve webinar about LTC insurance, who aren’t currently offering this benefit to employees, saw that they are not alone. Why aren’t more employers offering LTC? It’s an important topic that can quickly make some of the most seasoned benefits professionals feel not quite up to the task. The only other barrier is your perspective about it, and the proper education can replace fear and hesitation with clarity and a sense of empowerment.

A Different Perspective on Benefits

Are you ready for a discussion that has the potential to positively impact your employees’ lives long into the future? The idea of long-term care insurance requires thinking differently because it’s about a long journey for the whole family. If your employee is struggling to find resources to care for themselves or loved ones, it often shows up in the workplace as emotional stress. Long-term care insurance is the answer.

Aside from Medicaid, only LTC insurance covers services such as custodial and homemaker care when someone is cognitively or functionally impaired. And, unfortunately, Medicare is not the answer. Not being prepared for these needs usually results in a spend-down of the assets you’ve worked so hard to accumulate.

The facts are sobering:

• 70% of people over the age of 65 will need some form of LTC assistance
• $102,900 is the average annual cost of a skilled LTC facility (the average American retires with $198,600 in 401[k] savings)
• $17,532 is the average annual Social Security benefit for retired workers

The Potential Payroll Tax Implications

As much as you would like to provide your employees with value-added benefits, a greater incentive for offering LTC coverage may be on the horizon for employers. As aging populations decline cognitively and physically—and run out of money to pay for long-term care—they are putting a growing strain on state Medicaid budgets. The states’ response could be to impose a payroll tax on companies to fund this increasing care burden, and it’s incentivizing businesses to offer LTC insurance options to their employees.

Washington is the first state to pass this type of legislation, and 14 other states are currently considering long-term care funding legislation. It’s important to get ahead of state legislation because your company can have more control if you help employees use these same dollars to fund their own private insurance plan. If other states follow Washington’s lead, private coverage will need to be in place the calendar year prior to legislation taking effect in order to avoid the payroll tax. Although at this point it is only an assumption, applying this same logic can be predictive of what is to come.

LTC Coverage as a Financial Protection Solution

LTC insurance is different than the benefits you’re accustomed to. A 401(k) is a known financial vehicle to support us into retirement while private long-term care insurance is becoming increasingly relevant as a protection of our 401(k) assets.

Here are some factors to consider when determining if LTC is right for your employee population:

• Is the geographic location of your employees likely to be impacted by the legislative landscape of their state(s)? This could determine whether you look at this sooner rather than later.
• Do employees value and participate in optional life insurance? If yes, they may be interested in purchasing this type of product. Many life insurance products are bundled with LTC.
• What is the financial demographic of your employees? Do they have affordability challenges?
• What is the tenure of your employees? LTC insurance is a permanent coverage employees can keep after they leave their employment, and at the same affordable rate.

Your LTC insurance offering:

• Alleviates the LTC affordability crisis
• Completely portable and no premium change when the employee leaves and moves to direct billing
• Guaranteed issue access for the employee (when not currently disabled)
• Best option for employees to receive pricing as a part of a group
• Allows you and your employees to feel empowered rather than uninformed, misinformed, or feeling overwhelmed about this complicated issue

The ball is in your court, and you still have time to offer an LTC benefit for a January 2, 2024, start.

The effort is worth it—don’t wait another year. You have a unique opportunity to have a company culture that actively engages in financial wellness by helping people with purchase for their lifetime.

Count on your EPIC consultant to evaluate your population’s fit for LTC in your benefits offerings and to keep you informed about your state’s LTC legislation. A list of the Top Five Reasons to Offer Employees Long-Term Care Insurance can be downloaded through the form box on this page.