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.
