Say what you will about the Patient Protection and Affordable Care Act (PPACA), but it is having a positive effect on the voluntary worksite marketplace.
The majority of Americans seem to feel that health insurance coverage will never be the same and that future coverage will be less comprehensive and more costly. This would continue a decade-long pricing trend where employers passed more of the premium responsibility for health coverage on to the employee even as deductibles and out-of-pocket costs were increasing.
Concerned that the underlying health care coverage may not be enough or even affordable in the years to come, employees have embraced the supplemental products employers are making available to them through both Section 125 cafeteria plans and payroll deduction. Whatever health insurance ends up looking like post-2014, there will be ample opportunity for additional supplemental sales to make up for whatever an employee feels the core benefit package is lacking.
How is it advantageous to an employer to offer long-term care insurance as a worksite product? What are the tax consequences of doing so? If it is offered, will employees want to buy it? Is it a better product for a somewhat older employer group, age-wise? Enter long-term care insurance.
The worksite marketplace
The worksite is still a wide-open opportunity for long-term care insurance, akin to the one confronting pioneers who poured through the Cumberland Gap to head west and begin a new life. According to analysts, there are 5.8 million small- to medium-sized businesses in the United States who do not yet offer a long-term care insurance benefit to their employees.
There are the usual reasons why long-term care insurance should not work at the jobsite: The audience is too young to be motivated about long-term care insurance, the prices are still too high to interest a significant number of people, and the employer/human resources (HR) person is less interested in this type of coverage than others that they consider to be higher priority, such as health insurance and disability income coverage.
But the results belie these excuses. Given the chance to review this coverage, employees know better than anyone how this need might affect them. This could be the first chance they have been given to add this benefit to their portfolios. No advisor has called them to talk about it. But they may have had hands-on experience as caregivers, and they are, for the first time, discovering the premium they must invest to have their own coverage for a future need.
An often-overlooked fact about long-term care insurance and employees is that it can be more closely tied to health insurance than it seems. Health insurance covers short-term needs, and it may even provide for a limited number of days for home health and skilled facility care. Long-term care insurance supplements this, extending the number of days of coverage considerably for both types of care. Employees can decide how important this might be to them.
The health of an employee may also be a factor. Many are living with medical problems even as they continue to work, so they may be able to relate to long-term care insurance. Government research shows that 40 percent of Americans live with a chronic condition and 60 percent of them—about 65 million people—are working-age adults. Chronic care equals long-term care assistance, so many are likely to jump at the chance to add important supplemental coverage for it, especially if the purchase is easily accessed through the workplace.
And it can be simple. Many worksite sales are completed with little or no medical underwriting, improving the chances of issue dramatically, especially for those with the aforementioned chronic conditions. Given all this, it is worth knowing a little more about this market.
The sales premise of the worksite marketplace is to offer supplemental products to a larger audience than the individual sale. The business market is often a daytime market, although we have all been on enrollments at 10 p.m. or 5 a.m. catching the night shift coming on or getting off work. Employees purchase the majority of their insurance coverage through their place of employment, and benefit packages are a requirement of many job seekers.
Benefits continue to retain and attract employees, as evidenced in this recent survey: 6
- 60 percent of employees say benefits are an important reason that they remain with an employer.
- 49 percent say that benefits were an important reason that they came to work for a company.
- 52 percent of employees are interested in a broad array of voluntary benefits they can pay for on their own.
- Only 43 percent of employers believe their employees are interested in voluntary benefits.
You can easily see the perception gap here and why the financial advisor often acts as a liaison between the employer and employee. Clearly, employers often underestimate the power of a strong benefit package. Employees want solid, high-quality offerings, and if they see the value they will buy. This helps employers retain employees who become tied to their benefit packages.
Your first sale at a worksite setting begins with the employer. If you can convince him or her of the value of the program you are offering, you have completed an important first step in the successful implementation of the program.
Without further ado, here are five entry points to start selling worksite LTCI.
1. Talk about tax breaks
One of the best ways to generate interest in worksite LTCI is to discuss the many tax advantages of the offering, especially if the employer contributes premium to the plan.
The tax consequences of long-term care insurance were clarified by the Health Insurance Portability and Accountability Act (HIPAA) in 1996. This law established Internal Revenue Code 7702(b) for long-term care, created tax-qualified long-term care insurance, and paved the way for both the tax deductibility and the tax-free distribution of these insurance benefits.
Think about it. An employer can select the employees most important to the firm to receive a new employee benefit, long-term care insurance. Any business that buys a long-term care insurance policy and pays the premium on behalf of an employee receives tax deductibility. Should the owner also wish to be covered, the deductibility of the premium could be limited, depending on the type of business.More important from the employer’s point of view is the ability to carve out a specific group of employees to cover with long-term care insurance. Almost any criteria other than age or gender can be used to do this. No ERISA, HIPAA, or COBRA reporting requirements are associated with a multi-life long-term care insurance plan. This generally piques the interest of an employer prospect.
A C-corporation owner would retain full tax deductibility of the long-term care insurance premium. S-corporation owners, partners, and sole proprietors can deduct some or all of any premium paid based on an age-banded table (indexed annually) that the HIPAA law created. This is the same table that people with Health Savings Accounts (HSAs) use to withdraw the maximum eligible amount to pay (or help pay) for their long-term care insurance premiums.
If you are an S-corporation owner, a partner, or a sole proprietor and you also happen to have an HSA, you can potentially use both the business tax deduction and the HSA withdrawal to maximize the tax break available to you. In no event can the deduction and withdrawal exceed the annual premium, but the HSA can potentially pay for the entire premium amount.
Here is an example. You have an S-corporation owner, age 58, whose individual long-term care insurance premium is $2,250 annually. This person is eligible to deduct $1,270 from the business as an expense. This leaves a $980 balance on the annual premium. Since this business owner also maintains an HSA, up to $1,270 can be withdrawn from it as well. Because only $980 is left to pay on the annual premium, the full amount available is unneeded. The client can withdraw the $980 from HSA funds to pay the balance. This means that the entire $2,250 premium was paid for with before-tax dollars, a best-case scenario for long-term care insurance.
Taxes are generally a jump-start for employer conversations. Once you explain the carve-out situation where an employer can reward key employees of his or her choice, the sales opportunity presents itself. Depending on the size of the employee group established, there may be some underwriting considerations, even with individual policies.