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?
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.
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.
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.
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.
2. Sell it as a “free” benefit.
Today’s economic climate could affect the course of this conversation. Without question, the Great Recession has had an impact on businesses and employee benefits (and it continues to do so). Money that might ordinarily be available to purchase high-quality individual long-term care insurance is typically not there now.
This does not mean that employers are trying to cut back on their benefit packages. In fact, they are looking to strengthen their benefit offerings as a means to retain and reward trained employees. Although unemployment rates remain high and qualified employees may be readily available, savvy employers are trying to retain employees because of the costs associated with acquiring and training new talent.This presents an opportunity for financial advisors to explore a different approach to bringing long-term care insurance to the worksite.
What if an employer could offer a voluntary worksite long-term care insurance plan without having to contribute any dollars? What if this plan could, with minimal participation, be written without those pesky medical questions? What if the rates were discounted because it is an employer-sponsored case?
This is often how both individual and group long-term care insurance is brought to the worksite market today. No employer contribution, 15 percent employee participation, and competitive benefits and premiums offered in a “choice-of-three-plans” menu. If an employer can add a new (and perhaps in-demand) employee benefit at no tangible cost other than making time for a financial advisor to see the employees, it’s hard to say no to this suggestion.
These policies cannot be written as part of a Section 125 plan. This was excluded as part of HIPAA, an oversight that has yet to be corrected. Still, participation has been strong even though employees have to pay for it with after-tax dollars. Unless of course, they have an HSA.
See also: 7 reasons HSAs are taking off
Even hard-to-crack HR/benefits people can soften a bit when given the no-cost voluntary plan description. Many still think that long-term care insurance skews toward an older workforce and are therefore reluctant to consider it, thinking it would be a waste of everyone’s time. In this situation, it is good to question why they offer benefits like dental insurance. Once you hear their reason for that, you can begin to see how they think about such offerings and tailor your presentation accordingly.
3. Pitch LTCI as a cure for presenteeism.
There is yet another card to be played. Many employers today are dealing with employee absence caused by caregiving demands. Businesses that offer long-term care insurance at the worksite may reap a more productive workforce as a result.This is how.
Concern about long-term care in the workplace is not only about employees becoming disabled. It also involves the loss of an employee due to caregiving chores. An employee who is not at work is clearly not productive that day. Whether the absence is because of physical problems or caregiving obligations may not matter to an employer. Either way, the person is absent.
But caregiving responsibilities may not be completely measurable by absences alone. In the 1990s, a new phenomenon started to appear in the workplace: presenteeism. This is when an employee reports for work but is far less productive than usual. The term also applies to employees who come to work sick and similarly under-perform their job responsibilities.
What could keep a caregiver busy during the workday? Mostly, time spent on the phone — with the person being cared for, with the home health aide, with a family member, or with a neighbor who is checking on the dependent adult. If that phone time adds up to two hours a day, then in an eight-hour day, actual productivity slips to six hours. Over several months, this adds up significantly. As we know, caregiving is not generally a one-time or short-term effort. It may involve two or three years or more of the working caregiver’s time. How many lost hours does that amount to?
Presenteeism productivity losses are based on the indirect costs of workers managing daily caregiving tasks from their desks, lack of initiative due to repetitive caregiving problems, and a failure to focus on and successfully perform workplace tasks because of chronic, low-level, caregiver-related illnesses. These illnesses include depression and fatigue, chronic stress, anxiety, head- and backaches, and stomach and intestinal disorders.
The difficulty with identifying presenteeism is that lost productivity is unlikely to show right away. It may be weeks before someone notices the drop-off in results, and longer still to identify the problem. Working caregivers rarely share this extra-vocation information with fellow workers, let alone supervisors and managers.
How can long-term care insurance help?
Worksite long-term care insurance not only can be offered to employees, it can also be offered to employees’ family members. Although family members do not enjoy the more lenient underwriting available to the employee, these relatives may still be able to take advantage of the relatively easy enrollment process and lower prices afforded the group. Managed properly, this expands the number of potential applicants on a worksite case five-to tenfold and more.
The conversation with the employer and/or the HR manager is that sales to family members can address a major cause of presenteeism. If a family member has a policy and a long-term care event occurs, the need for the employee to serve as caregiver declines dramatically. The policy can pay for adult day care or regular home health agency visits and, if the condition worsens, facility care. The employee drops into the generally desirable category of “back-up caregiver.” Medical conditions that normally plague caregivers are then less likely to affect the employee. Less time will be spent on personal phone calls because the insurer typically assigns a care coordinator to answer the daytime calls that had been going to the employee.
Once an employer understands that the long-term care insurance program can be offered to more than employees and the potential good it can do, the chance of acceptance of this new employee benefit offering rises substantially. Once more, no employer contribution to the premium is required.
If employers do opt to pay premiums toward employee long-term care insurance coverage, plan design can be very creative. The employer may single out some key employees and decide to pay only their premium. Or the employer buys a “starter” amount of benefits such as $50/day for three years, and the employee has the option to upgrade to a higher benefit and longer benefit period. The overall effect of the latter design is the purchase of a policy that is partially funded by the employer, further reducing its cost to the employee.
The growth of the voluntary long-term care insurance worksite marketplace has been the driving force behind increases in sales in year-over-year measurements of the last decade. Analysts say that employer cost shifting and increased consumer awareness are the main reasons for the upsurge in voluntary benefits.That’s a bandwagon worth jumping on.
But there may be more ahead for employers to consider. In the years following the passage of the HIPAA legislation, the insurance industry has pressed hard for the inclusion of long-term care insurance in Section 125 plans. Many businesses, large and small, have this type of employee benefit program, which allows employees to purchase supplemental products with pretax dollars. This also has the effect of reducing payroll, consequently saving the employer money on taxes, unemployment compensation, workers’ compensation, and the like.
Every employee who decides to buy long-term care insurance at the workplace is potentially one less applicant to the Medicaid program. With attention focused on Medicaid because of budget constraints, there is an opportunity to pass meaningful legislation that permits this method of buying long-term care insurance.
The government knows that it can’t pay for America’s future long-term care bills. Providing incentives to Americans to take care of their own need for long-term care in the private market helps preserve the Medicaid program itself.
In summary, there are many ideas and concepts about worksite long-term care insurance to discuss with employers. These include the following.
- Using pretax corporate dollars to pay for asset protection, most likely postretirement
- Adding a voluntary benefit without having to invest any money while retaining the characteristics of worksite products that are important to employees, such as limited or no underwriting
- Adding individual long-term care insurance to key employees’ benefit packages. This means that the employer is likely funding retirement dollars through 401(k) or other pension programs and is now funding a vehicle that will protect those retirement dollars from long-term care expenses.
- Retaining key employees who measure the value of a job by their employee benefit package.
- Addressing the HR issue known as “presenteeism” by expanding the offering of long-term care insurance beyond employees to spouses and other family members, including parents, siblings, and grandparents.
For more from Jeff Sadler, see: