Long-term care benefit helps workers, employer

While nearly all Americans plan for retirement, most neglect to plan for long-term care needs. However, long-term care is something for which everyone should plan.

Often hailed as the single largest unfunded medical expense in the nation, a study conducted by the National Council on Aging, John Hancock Mutual Life and the American Health Care Association revealed some disturbing results of long-term care planning. Among them:

87 percent of Americans think long-term care is a big problem, however, only 12 percent feel they have adequately prepared for the risk.

79 percent of older baby boomers believe that long-term care is the greatest risk to their standard of living and feel that not planning for it is irresponsible.

85 percent of the baby boomer generation did not know that Medicaid is the primary funding source for nursing home residents.

In Missouri, to qualify for Medicaid assistance, you must have less than $2,000 in assets exclusive of one house and one car.

So, why should you deal with long-term care issues now? The simple answer is the value that results from combining time and money. Like retirement savings, the sooner you start, the less it requires to achieve your results.

For example, at age 40, if you purchased a long-term care policy that provided a $100-per-day benefit, cost-of-living allowance and the compound benefit, at age 75, the benefit could be as high as $552 per day. If you wait until age 60 to purchase this plan, not only is the premium higher, but the same benefits would be approximately $208 per day.

As a business owner, a tax-qualified long-term care insurance plan can be a great benefit for your employees. Typically, in this current "zero growth" employment market, a good way to get new employees is to take them from someone else. Long-term care insurance is a great benefit for recruiting/retaining top level employees.

Long-term care insurance is also a tax-deductible benefit for the company. If you are a C corporation, the tax-qualified long-term care premiums are 100 percent deductible. For all other companies, including S corporations, partnerships and self-employed, the rate of deductibility is currently 60 percent. This will gradually increase to 100 percent by 2003. As an incentive to Missouri corporations, the balance of the non-deductible premiums is 50 percent deductible on the state income tax return.

Why would a business provide long-term care insurance to the top layers of management?

Retention of key employees;

Tax-deductible expense;

Extra retirement benefit for them and their spouses.

Long-term care insurance is expected to be the most sought-after benefit of this decade. In 1998, The Wall Street Journal and Business Week reported two staggering factors:

The annual cost to companies for workers' lost productivity related to elder care responsibilities is estimated at $17 billion per year, or $3,142 per employee.

By the year 2005, 37 percent of U.S. workers will be more concerned about caring for a parent than a child.

How do you know if long-term care insurance is right for your business? Here are a few questions to ask yourself. If you answer yes to two or more, you should look into offering long-term care insurance as an employee benefit.

Is your business profitable?

Do you have three or more high-level positions that would benefit from long-term care insurance?

Is your industry in a growth mode?

Do you suffer from high-level position turnover?

Long-term care insurance is the right employee benefit for any age, not just for the elderly.

The younger the purchaser, the lower the cost over the life of the policy. It offers asset protection to every person at any age, as well as peace of mind and less trouble for family members when long-term care needs arise.

Nursing home care can cost as much as $50,000 per year or more. If you needed that level of care for three years, what effect would that have on your retirement planning? At that level of expense, how much more savings must you have to comfortably retire? Or perhaps a more realistic question is, which assets will you give up to finance your long-term care needs?

Long-term care insurance is not only for nursing home care, but can be purchased to cover in-home care, assisted living and hospice care. On tax-qualified plans, the benefits come back to the insured on a tax-exempt basis.

Many reasons for providing this type of benefit have been discussed here, yet probably the most important reason for having long-term care insurance is personal responsibility. Use the time and resources currently available to you to properly plan for your future needs.

For more information about tax-qualified long-term care insurance, call your employee benefits consultant. And consult your tax adviser prior to the purchase of any long-term care insurance product. Remember, being part of the solution is always better than being part of the problem.

(Mike Scott is an account executive in the employee benefit division of BPJ Insurance.)