Executive Long Term Care Insurance


Long Term Care Insurance: New Executive Perk?

For many busy executives, a secure financial future is no longer their only major concern as they edge closer and closer to retirement. Health issues are taking center stage. These employees want to ensure that their long-term healthcare needs are met in a way that doesn’t deplete their life savings or jeopardize their estate assets. Companies, seeing the need, are now offering long-term care insurance as an enticing executive perk.

For many years, firms have focused on creating benefit packages that provide financial security to key executives and their families as a means of attracting and retaining skilled executives. Times are changing. A secure financial future is no longer enough.

As the baby boomer generation edge toward their 50s, 60s, and beyond, they want to ensure that their healthcare needs are addressed in a way that won’t deplete their family’s life savings and retirement accounts. Responding to this need, more and more companies are offering long-term care insurance as a key executive perk.

Long Term Care’s Growing Costs

Long term care (LTC) differs from other forms of medical care. Instead of curing a patient, the care is designed to allow the patient to achieve an optimal level of functioning, according to a 2000 report by the U.S. Senate Special Committee of Aging. LTC is needed when an individual can no longer undertake simple, everyday activities such as bathing, dressing, eating, toileting, transferring (i.e., moving from a bed to a chair), or suffers from cognitive impairment.

Approximately 12.1 million Americans need assistance from others to carry out everyday activities says a 1999 report by The Henry J. Kaiser Foundation. Public and private spending on LTC services was more than $127 billion in 1998. About $34.5 billion of the cost was paid for by individuals and families according to a 1999 report, Medicaid Long-Term Care Expenditures in 1999 by The Medstat Group. The aging of the population is expected to result in a tripling of longterm care expenditures in the next 40 years to $346 billion annually, says the 1999 report, Long-Term Care: Medicaid’s Role and Challenges by the Kaiser Commission on Medicaid and the Uninsured. Individual costs depend on the type of LTC. Service can be provided at home, in a residential care facility, or nursing home. Average costs vary from region to region and the type of care delivered. Nursing home stays can easily exceed $50,000 a year, even reaching $100,000 or more a year in some states. Home healthcare costs can run from $50,000 to $150,000 or more. Given this backdrop, it is no wonder LTC insurance is becoming so attractive to many employees.

LTC Definition and Tax Benefits

Long Term Care plans have been around since the mid-1980s but became popular in the 1990s, especially after the passage of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). LTC is defined in HIPAA as accident and health insurance and thus not subject to ERISA guidelines (IRC § 7702B(a)(2)). A company is under no obligation to offer LTC to all of its employees. It can decide who participates so it can limit coverage to only specified employees and their dependents.

Long Term Care plans have attractive tax ramifications for employer and

employee. They include:

Premiums paid on policies are fully tax-deductible to a C-Corp. for employees and stockholders. (IRC162).

Pass-through entities and soleproprietorships receive a full tax deduction for non-owners, and a 100 percent or partial deductions for owners depending on their age and premium amount.

Premiums paid by the company are not considered taxable income to the executive receiving the benefit.