The Loop

Long Term Care Insurance

Filed under: Benefits

Presently, private insurance pays for only seven percent of the $300 billion U.S. spend on long-term support and services (LTSS), including nursing home facilities and home-based care. The USC Leonard Davis School of Gerontology predicts that by 2025, one half of Americans will pay for LTSS expenses out-of-pocket.

Not only are people living longer today, but they are working longer. Fortunately, work helps minds and bodies stay engaged on a day-to-day basis with a social network. This is a key component to warding off problems that tend to accompany retirement, such as inertia, isolation, and dementia.

The good news is that the longer people are able to work, the less time they'll spend idle in retirement. However, the longer people live, the more likely they'll need assisted living services toward the end of their life. The question is, how will they pay for long term care?

Employer Benefits
In all likelihood, the U.S. will need to explore multiple solutions for widespread, insurance-based long term care coverage, utilizing the strengths of both the private and public sectors. According to the U.S. Department of Health and Human Services, about 40 percent of employers offer some form of long term care insurance (LTCI), many on a voluntary basis.

Large employers with more than 500 workers generally offer what is referred to as a "true group" LTCI policy, which is traditional long term care insurance. Small and medium-sized companies tend to favor what are called "multi-life" LTCI packages, which are individual long term care insurance policies bundled together and offered at a discount. Multi-life policies also are available for a worker's spouse and parents in an effort to cover as many lives as possible. Note, however, that this type of policy typically has more stringent medical underwriting criteria.

In most cases, workers pay the full premium. However, recognizing that they're not likely to enjoy the benefit for years or decades in the future, only two percent of workers take advantage of this benefit.

And yet, the long term care benefit in one form or another is on the brink of becoming highly valued as the workforce grows older and older workers continue working. It is important that employers offer benefits that specifically appeal to older workers to balance those that appeal to younger ones, such as popular tuition reimbursement and student loan repayment programs.

Moreover, long term care offers low-cost value, since it is largely paid for by workers themselves. From an employer perspective, offering group long-term care insurance provides three primary benefits:

• Enhances recruiting and retention efforts with an insurance coverage gap not included in medical or disability insurance
• Improves worker productivity by offering access to resources that will help them manage long-term care for a family member
• Employer contributions to long-term care premiums are deductible as a business expense

The Value of LTCI Benefits
Regular health insurance covers only acute care, such as rehabilitation after a hospital stay. It is not designed to cover the cost of assistance over a long period of time. Therefore, longer term care expenses must be paid for out-of-pocket unless the worker is eligible for government benefits or has previously purchased some form of long term care insurance. (Since LTCI requires underwriting, policies are not generally approved after need is established).

The problem is that long term care can be very expensive. While fees vary based on location and other benefits, according to Genworth's 2018 Cost of Care Survey the following are national averages for various types of long term care services.

Long Term Care Insurance
One of the primary reasons to purchase long term care insurance is to protect household finances. In other words, if an entire savings nest egg is used up paying for care of one disabled spouse, little will be left for the other spouse to carry on.

The policy itself typically covers the cost of daily care for a person with a chronic illness, disability, or conditions associated with aging. The contract may be structured either as an indemnity – which pays out a fixed sum for any use – or as reimbursement for payments made to a nursing home, assisted living facility, for home health care or some combination thereof.

Typically, a policyowner qualifies for LTCI benefits when his physician verifies that he needs help with at least two of the following "activities of daily living" (ADLs):

• Personal care, such as bathing, grooming, oral, nail and hair care
• Using the bathroom
• Dressing
• Feeding oneself
• Moving from one position to another and/or walking

An LTCI policy may have a waiting period before coverage kicks in (e.g., 90 days) and there is generally a limit to how long coverage lasts (e.g., three years).

Health Savings Account
Employers also may encourage workers to save for LTCI expenses in retirement through a health savings account (HSA) offered in conjunction with a high deductible health insurance plan. An HSA is funded via worker and/or employer tax-deferred contributions and can be used to pay premiums for long term care insurance and for actual long term care services, such as:

• In-patient hospital care
• Residential nursing home care for medical reasons
• In-home nursing services connected with patient care
• In-home care (only the portion of the expense paid for direct medical care)

Hybrid Insurance
Another way to pay for long term care is through a combined benefit with a life insurance policy. For example, a whole or universal life insurance policy may offer:

• A long term care rider for an additional fee
• Terminal illness benefits that distribute a portion of the policy's death benefit when a policyowner is diagnosed with a terminal illness or cognitive impairment
• Accelerated benefits that distribute a portion of the policy's death benefit for long term care

Annuity Option
In recent years, annuity contracts have started permitting withdrawals specifically for long term care expenses from the policy's cash account value or through increased income benefits. Some annuities have added new features, such as a Long Term Care Doubler or a Home Health Care Doubler, which increase the lifetime income benefit for a limited time or the duration of stay in a long term care facility. These payouts enjoy income tax-free status.

Older workers who are healthy enough to work past traditional retirement age may also live a longer life. This means at some point they may well need assisted-living or long-term care. Whether offering an insurance option or long-term savings vehicle, many employers are committed to helping workers prepare for late-stage retirement with dignity and as much independence as possible.

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