For years, health insurance experts have believed that most Americans would be unprepared if they or a loved one faced a medical crisis that required long term care. While many know that statistically, nearly half of those over 65 may someday need LTC, most Americans believe it will happen to the other 50%–not to them. In addition, most people remain unaware of the real costs, and an alarming number falsely assume government programs will shoulder the burden. As a result, when a medical catastrophe occurs, the majority of Americans may be forced to finance their own care.
Although the idea of paying the full cost of LTC treatment is a grim prospect, there may be hope for empowering more Americans to be ready in the event long term care is necessary. A recent study found that almost three-quarters of Americans (74%) agreed they would be more likely to purchase LTC insurance if employers offered it as part of their benefit plan–similar to how other benefits are provided by employers. While the study results are promising, current law does not allow LTC insurance to be offered in this manner to protect employees against potential long term care costs.
Employers naturally poised to provide benefits
Most Americans rely on their employers for health insurance, so promoting flexible LTC plans to Americans (known as section 125 plans and commonly referred to as “cafeteria,” “benefit” or “flex” plans) would be a natural fit for employers. Similar to 401(k)s, flexible LTC plans, when offered as part of an employer-sponsored benefit plan, allow employees to pay for benefits on a pre-tax basis and to reduce their salary by the amount of the premium for the benefit. Unlike health insurance, the policy is portable, so it goes with the employee when they leave their employer and the premium remains the same. Policies sold in the group market offer preferred underwriting, so the policy is guaranteed issue to the employee.
Allowing LTC insurance the same advantages as other insurance products offered under section 125 plans creates a win-win situation with cost savings for both the employer and the employee. Since federal income and FICA taxes are calculated on an employee’s salary, the employee’s taxes are reduced and the net cost of the benefit is lower. Since employers match employee FICA contributions, flex plans also reduce an employer’s outlay for FICA.
Also encouraging is that employees would have a choice between several benefit options and would have the freedom to withdraw cash from their accounts to pay for medical expenses. With these plans, beneficiaries can decide where their saved funds will go: whether to pay for home health care, a licensed assisted living facility, hospice care or respite care. In short, these plans allow for beneficiaries to decide how they want to spend their insurance money. More importantly, these plans would give Americans the freedom to choose where and how they want to receive their long term care.
Additionally, including LTC coverage plans in employer-sponsored benefit plan systems would also save government health care programs money. A recent study found that as many as 24% of Americans incorrectly assume that Medicare covers the cost of LTC. Those who were planning to rely on Medicare are instead forced to self-pay or reduce their assets to poverty levels before they can be eligible for Medicaid, the federal-state health care program for the poor. That asset reduction often puts an additional financial burden on Americans and their family members–in addition to raising costs for taxpayers. By allowing for these plans, Congress could help save federal and state Medicaid dollars by encouraging more people to purchase private insurance through their employers.
Legislation could lead the way
While solutions to help Americans prepare themselves for LTC costs do exist, the tools enabling them to take action are simply not in place. Legislation that would allow for these plans to become part of the national employer-sponsored benefit plan system has been proposed multiple times, but has yet to be passed. The Long Term Care and Retirement Security Act of 2005, sponsored by Sen. Charles Grassley and co-sponsored by Senators Susan Collins, Blanche Lincoln and Chuck Hagel, would allow individuals a deduction for qualified LTC insurance premiums under a cafeteria plan and a flexible spending arrangement. In addition, the legislation would also allow for lines of government-funded credit to be extended to individuals with long-term needs who are unable to pay the out-of-pocket costs of living. Similar legislation has been offered in the House.
With the passing of legislation, more employers would be inspired to offer LTC benefits to their employees, which in turn would make LTC plans more accessible and affordable for employees and their families. This would especially benefit younger employees, who would gain from making their initial purchase when premiums are most affordable. In addition, providing employees with the opportunity to purchase these plans with pre-tax dollars will allow many more moderate-income and middle-class families to better plan for their financial futures. Finally, more baby boomers, poised to retire in large numbers soon, could be motivated to ensure their retirement plans include a safeguard in the event long-term care services are needed.
One out of 5 Americans over age 50 is at risk of needing LTC in the next 12 months, and that number is expected to rise as the population ages. However, less than 15% of all individuals over 65 and fewer than 5% of those under 65 take advantage of private insurance plans to help with the costs of LTC. The 110th Congress is in a position to help educate and support Americans, such as through the proposed Long Term Care and Retirement Security Act of 2005. And, according to recent survey data showing there is a tangible way to encourage more Americans to protect themselves with long-term care insurance, current legislation can fill a great need. The American public is looking for help in designing a plan for covering LTC costs and better securing their financial future, and Congress can help.