long term care insurance as an employee benefit

When you mention the phrase “employee benefits,” most people think of the standard offerings: vacation, health insurance, sick days–that kind of thing. But lately, more and more firms have started to offer Long Term Care Insurance (LTCI) as an employee benefit. 

It’s a smart move. LTCI can offer something tangible and useful to employees without significantly impacting the budget of the business. As a result, LTCI has become a creative perk–used to recruit and retain new talent. 

But what does Long Term Care Insurance as an employee benefit really look like? And how can you implement an LTCI program with your business?

Advantages of Offering Long Term Care Insurance as an Employee Benefit

Employee benefits represent an interesting balancing act. To be effective, they must present a true benefit to employees. But they can’t cost so much that these employee benefits end up harming the business.

The nice thing about LTCI as an employee benefit is that you create benefits for both the business and the employee. For example:

  • With a tight labor market, new employees will always be looking for those fringe benefits that make one company seem better than another. When you offer LTCI, you’re saying two things: First, that your benefits packages are thoughtful and unique; second, that you care about what happens to employees. That’s something that employees are really looking for these days. 
  • You can offer LTCI as a tax advantaged perk for senior executives or for employees who meet a certain common criteria (for example, a minimum number of years of service). Since LTCI is a benefit that pays off longer term, LTCI can be a nice match for employees who stick around for the long term. There are a number of options. As one example, an employee who might earn a bonus or a salary increase, which would be taxed, could opt to apply the bonus or increase to a Long Term Care Insurance policy, which would not be taxed. Of course there are more details, but overall, this benefit with options like these can help you better recruit and retain top talent.

When your employees are happy and feel looked after, they tend to be more productive and easier to retain

How Does it Work?

If you’re curious how LTCI as an employee benefit really works, you can talk to an LTCI specialist at Murray A. Gordon & Associates. The actual ins and outs will vary depending on the shape of your business. However, there are some general similarities across businesses.

In general, employers will pay their employees’ LTCI premiums in a pre-tax fashion. This is similar to how it works with health insurance. But in this case, even the benefit payouts received by employees are not taxed (up to a benefit payout amount of $390/day, or $142,350/year as of 2022. In 2023 that benefit payout will increase to $420/day, or $153,300/year). This means that most employees can enjoy the protection of LTCI without having to pay taxes on either end of the transaction. 

There are two basic ways to set up these LTCI benefits. The first is to set it up as a plan in which employees can participate individually. The other is a group plan. 

For Individual Plans

Individual plans are typically the easier, simpler way to offer LTCI benefits. Each individual employee simply makes choices about their Long Term Care Insurance plan. Here’s how it typically works:

  • You work with an individual broker who specializes in LTCI. This broker should know the ins and outs of the LTCI market.
  • You and your broker will work with your employees one-on-one. This may be as simple as offering educational materials (webinars or literature are two popular examples). 
  • Once you’ve educated your employees, you can help them choose the LTCI plan that’s right for them.
  • Employees can use their HSA dollars to pay for the premium. What’s more, many states offer a tax credit for the premium payment, or a tax deduction, for individuals that have a Long Term Care Insurance Policy in place. Download our free Guide To Tax Planning for details on HSAs and other federal and state tax benefits to Long Term Care Insurance.
  • Some employees may choose not to take advantage of LTCI. That’s okay. An individual plan system is designed so that everyone can choose exactly the level of care they need.

This system is popular, especially amongst small and medium sized businesses, because it’s simple to set up and presents minimal financial risk. But there are some advantages to group plans–even if they’re a little more complicated.

For Group Plans

Group plans are best suited for larger companies. A good benchmark is over 1,000 employees, although the exact headcount varies by insurance carrier. Group LTCI plans work in much the same way that health insurance group plans work. As a result, they operate under the assumption that there’s negotiation strength in numbers. However, they are a little more involved when it comes to setup. In many cases, a group LTCI will require:

  • A company wide census to be provided to your LTCI broker. This will help establish your overall risk pool.
  • Your broker will also need to collect background information on your business and your employees. This will help determine which types of LTCI will best suit your goals.
  • Your LTCI broker will then use this collected information to negotiate with insurance carriers. The benefit of this approach is that you may then be able to secure a lower rate for your LTCI offering.

One benefit of a group pool is that you can sometimes get lower rates for your employees, improving your overall offering. Another benefit is that the underwriting is simpler and requires answering fewer health questions. The drawback is that employees might be presented with narrower options. Every business will have to analyze the benefits and drawbacks against their own LTCI goals.

Make the Right Choice for Your Company

Offering LTCI as an employee benefit can present a low cost, low risk way to bring prestige to your company–and help your employees happily stick around. To talk through your options and discover the best path forward for your company, contact Murray A. Gordon & Associates to talk to a Long Term Care Insurance expert.