Not long ago, Long-Term Care (LTC) insurance was considered a corner-office solution for wealthy, older executives. However, over the past two years legislative activity has catapulted LTC insurance into the future. The LTC market is growing rapidly, providing new opportunities for employees as well as executives. One of most intriguing new approaches is a product that combines life and LTC insurance. If, like many employers, you’re looking to make your benefit program more attractive in today’s highly competitive labor market – or just want to help fill a worrying gap in your employees’ financial outlook -- it might be time to give LTC another look.
Long-Term Care: The problem everyone is trying to solve
The US population is getting older and living longer, and the costs associated with eldercare are growing. Given that the buck stops with Medicaid, Federal and state governments are looking for ways to address this looming problem. One of the most recent examples is the State of Washington’s new WA Cares Fund, the country’s first mandatory state LTC plan, which is designed to help shift Medicaid liability to a payroll tax base. The limited benefit plan requires Washington employees to pay 0.58% of annual wages (in-perpetuity, uncapped and expected to increase) into a state fund, unless a state-issued opt-out is received with proof of qualified private LTC coverage. Although the implementation of the WA Cares Fund has been delayed from January 1, 2022 until mid-2023, more than 13 additional states are considering moving forward with varying types of LTC legislation, and there have been numerous proposals regarding LTC at the federal level as well.
To add another layer to a complicated situation, the LTC market is one that has challenged employers. After the traditional LTC market became more fragile with rate increases, carriers leaving the market and fewer carriers enrolling new participants, some employers have been reluctant to venture back into this product space.
As all the swirl surrounding LTC coverage continues, it raises the question: Would employees rather be potentially taxed and at risk due to limited coverage, or buy private LTC coverage with more protection elsewhere?
Not your parents’ Long-Term Care
According to a Genworth survey, 70 percent of Americans over the age of 65 today will ultimately need some type of long-term care. By 2030, 24 million Americans will need long-term care, nearly double the number needing care today. Employees who don’t consider the cost of long-term care in their financial plans could be at significant risk. Many, especially those assisting parents needing long-term care, are already concerned about this future expense. But as Washington and other states move to enact payroll-tax-based funded programs, employees will become increasingly aware of the need to plan for the cost of long-term care – and may welcome an alternative to a public plan that offers more robust coverage and greater flexibility.
That’s where combined life and LTC insurance comes in. This fresh approach is distinctly different from traditional LTC and appeals to employees previously considered outside of the LTC buyer profile. Here’s what makes this option so versatile:
- Portable design that evolves as needs change. Best-in-class products allow employees to maintain coverage post-employment without additional underwriting, and offer same-rate portability.
- Dual benefit structure. A combination product provides more flexibility and protection, with guaranteed use — plans pay life insurance upon death and/or a living benefit that is triggered by a LTC event.
- Accessible to younger demographic. With income-replacement as a primary need, younger employees are enrolling. Initial claim data supports the shift to a younger demographic, with one carrier reporting 60 percent of LTC claims are associated with insureds under age 65.
- Guaranteed-issue availability. With the key product being permanent life insurance, guaranteed issue and/or simplified issue may be available for employer-based plans – which, by including the LTC rider portion, allows more participants access to coverage.
- Indemnity solution. Indemnity reimbursement designs favor participants because many carriers advance payment based on proof of LTC services only. Most traditional LTC plans use a reimbursement structure, releasing funds only after proof of actual payment for covered LTC services is submitted to the insurance company.
As the market continues to stabilize and the list of carriers offering these products continues to grow, employers may find this option increasingly viable – and valuable.
The rate of change isn’t slowing soon
While we can’t know for sure how the LTC market will evolve, the need for adequate and affordable coverage only continues to grow. LTC is no longer just nursing home care, or only accessible for affluent consumers. It’s something everyone — regardless of age — should have as part of their financial portfolios to plan for the future and protect their assets. Employers have a new opportunity to help make this possible.