Why employers should provide Hybrid Life + Long-Term Care Insurance—and not state legislators

In the state of Washington, its legislature recently passed a deeply flawed Long-Term Care Insurance (LTCI) law as an attempt to stem massive budget losses of its Medicaid Program, which provides nursing home care for the poor who are no longer able to perform some basic activities of daily living. Why is the law flawed??

o???The Washington state plan should have moved cautiously in legislative committees, exploring alternatives such as having private insurers provide a 2-year benefit, with the government stepping in as the stop-loss fund for claims beyond 2 years.?

o???This alternative could have means-tested premiums and claims administered by insurers. Instead, the WA law has its public sector bureaucracy insuring and operating the program.?

o???WA residents may opt out of the public plan by purchasing private insurance, but the legislature imposed a deadline of 11/1/21. After that date a payroll tax will be assessed every year.?

o???Since the private LTCI market currently has only about a dozen insurers, they have been overwhelmed with applications, dramatically extending the processing time from a week or two, to months. So, the legislature’s actual deadline for opting out was really in mid-August.

o???For those who work in WA but retire outside the state, they will be ineligible to collect any benefits. Will this cause an unintended consequence of workers moving to other states?

o???The payroll tax is .58% for every worker age 18+ but is not capped based on income. A WA resident who makes $100,000 will pay $580 per year. Over a 30-year career, that is $17,400.?

o???However, the benefits are relatively small: $100 per day for one year, for a total of $36,500. This law really provides Short-Term Care Insurance. And those already retired are not covered.

o???With Hybrid policies in the private market, however, if you never need coverage—a 48% probability—you get back all the premiums paid in the form of a tax-free death benefit to your beneficiary. But WA residents will not be so fortunate since no taxes paid will be refunded.

o???With adverse selection—meaning that unhealthy and low-income earners are meant to receive the benefits—how confident is the WA legislature that future payroll tax increases won’t be necessary? It is estimated that 150,000 WA residents have opted out so far, which could translate into $800 million in lost revenue.

o???With a maximum benefit of only $36,500, it is debatable whether the financial deficits of the Medicaid program will be lowered by this law. In a 2016 study by PWC, the average claim in WA was $169,000—and with rising labor rates for caregivers that figure may be closer to $200,000 in 2021, or over 5 times the public benefit.

o???Many WA residents have purchased private coverage and must send evidence to their employer. However, many will simply drop the coverage next year to avoid paying the tax. Yet the law does not contemplate the manpower or technology necessary to verify who still has coverage and who does not.?

o???How much of the payroll taxes collected will be spent on such expenses rather than paying for care??

The bad news is that several other states are reportedly planning to include aspects of what the WA legislature has passed, including California, Florida, Maryland, Michigan, Minnesota, Rhode Island, Texas, and Wisconsin.?

The good news, however, is that in reaction to this law, several large WA employers like Amazon, Boeing, Costco, Microsoft, and T-Mobile are reportedly installing private LTCI plans before the 11/1/21 deadline.

Most successful employers offer a 401(k) plan as a post-retirement benefit. So why didn’t these WA employers already offer Hybrid Life + LTCI?

o???Not until mid-2019 has a Hybrid LTC insurer designed a truly consumer-friendly product.?

o???Many knowledgeable brokers left the market for good after the Standalone LTCI market collapsed, reduced from 125 insurers to just 3.

o???LTCI has flown under the radar, as most CEOs and HR Directors are not familiar with how the Hybrid policy works, how much it costs, what the coverages include, etc.

There is a dangerous misunderstanding about LTCI:

·??????40% of baby boomers mistakenly believe that LTCI is covered by their insurance at work or by Medicare.?

...While there is an enormous need for employers to provide coverage:

·??????20% of the workforce—over 40 million— are also taking care of a loved one who needs LTCI.?

Everyone needs LTCI. But for most of the middle class it is unaffordable.?

• 94% of caregivers would stay with an employer that provided relevant caregiving benefits/resources. Employees purchase most of their insurance coverage through work.
• 52% of employees are interested in a broad array of voluntary benefits they can pay for on their own.

This is a win-win as employers educate their team and offer volunteer plans so employees can start setting aside money when young —while premiums are lower; and healthy—while they can get coverage. Coverage is available for employees starting at age 30. Volunteer Plans can be paid in full by the employee, or partially or fully paid by the employer.

Even better news is that employers can get coverage on two tracks. The second track is as an Executive Carve Out where:

·??????As few as 3 employees can form a group

·??????Discrimination is allowed if it is not age- or gender-based

·??????Partial tax deductions of premiums for employer-owners are allowed since LTCI is not under ERISA but HIPAA

·??????Full tax deductions of premiums paid for employees are allowed

·??????Tax deductions are also allowed for spouses/partners and dependents?

·??????List Billing is available

·??????Streamlined underwriting is available—no cognitive test if under age 62