Why Is There Not More Employer-Sponsored LTC Insurance?
Few people dispute that a long-term critical illness can devastate financial security for all but the most wealthy of us. Part of the solution, we believe, is to implement changes that will foster greater purchase of long term care insurance at the workplace. Here is why.
The odds of developing such illnesses are increasing. This is a problem for our health care system, and it is one of the reasons the Medicare system has such dismal future prospects.
Government estimates indicate there will be almost 70 million people over the age 65 by the year 2030 and that nearly 8.5 million of those will be over age 85.
At the present time, the government estimates 22% of people over age 85 live in nursing homes, with nearly half requiring help with normal activities. The cost for these services is enormous. At the present time, nursing home stays in this country cost $35,000 to $50,000 a year. Whats more, people who enter nursing homes stay for over two years and many stay much longer.
That means the cost for nursing home services is beyond the median net worth of households headed by people over age 65. Therefore, the ability to pay such staggering amounts, without government help or insurance, is well beyond the reach of the average wage earner.
What happens to those who need daily care but cannot obtain the necessary insurance to pay for it? They must either rely on the charity of their families or hope they are fortunate enough to live in a state with a Medicaid program that will pick up the cost of enabling them to survive with some modicum of dignity.
The vision of a hard working American spending his or her final years dependent on the charity of family or the government is not appealing. A better solution is long term care insurance.
For many years, conventional wisdom held that people who needed LTC insurance could not afford it and those who could afford it did not need it.
This was particularly true before enactment of the Health Insurance Portability and Accountability Act of 1996. HIPAA granted favorable tax treatment for premiums on tax-qualified LTC policies. For individuals, these premiums are treated as other health insurance premiums and–subject to the limitations applicable to all medical costs–are deductible. Moreover, premiums paid by employers are deductible in the same manner as are premiums for other types of health insurance provided by employers.
The years since 1996 have seen a remarkable interest, both in the insurance industry and on the part of consumers, in LTC insurance. Even so, there has been little employer involvement in providing this insurance to employees.
Admittedly, the upward pressures on health insurance costs across the board have tended to cause employers to display little interest in expanding coverages for employees. Indeed, many employers are actively searching for ways to reduce regular health insurance for employees or to shift more of the cost to the employees themselves.
Nevertheless, where LTC insurance is concerned, employer involvement is the most efficient method to provide this essential insurance to the average American.
Statistics about the need for this coverage are grim. The problem is a national one, and if the country is to have a solution for the future, we believe it must be addressed at the place of employment. We further believe the solution requires greater government involvement. We will explain both points.
The time to acquire LTC insurance is while the worker is still actively employed and, in most cases, in good health. The cost for such insurance, when spread over a large employee base should be far more affordable than is the cost for individual LTC insurance, which is usually purchased only after the insured has reached an age where the need for such coverage has become obvious.
HIPAA demonstrated that the federal government is aware of the social needs presented by the LTC problem. The states have followed suit with insurance statutes and regulations of their own; these enable insurers to offer effective products that qualify for favorable tax treatment.
Despite these advances, greater employer involvement is necessary. To make that happen, we believe the insurance industry needs to become more actively involved in obtaining more liberal tax policies that provide employers with incentives to provide LTC coverage.
The industry also needs to take a hard look at its products to make sure they are cost-effective and contain more than the minimum features required to qualify for preferential tax treatment. The objective should be to afford dignified LTC solutions, not merely the minimums required by law. Moreover, the products need to have the flexibility to enable insureds to adapt coverages as their needs change.
LTC insurance is still in its infancy. It can satisfy a social need that can supplement the nations health care system. It needs a partnership of government, insurers and employers to make sure the products, the delivery system and the financial basis for the program are effective.
Norse N. Blazzard, JD, CLU, and Judith A. Hasenauer, JD, CLU, are principals in the Ft. Lauderdale, Fla., law office of Blazzard, Grodd & Hasenauer, P.C. You can e-mail them at Norse.Blazzard@BGHPC.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, January 20, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.