True group long-term care insurance as part of an employee benefit plan

One of the primary objectives of an employee benefit plan is to attract and retain valued employees. A social objective of an employee benefit plan is to provide a safety net for the workforce, and therefore, members of the community. Of course, the primary constraint placed on these objectives is cost.

According to statistics provided by the United States Bureau of Labor Statistics, employers’ costs for employee compensation of civilian workers averaged $28.11 per hour worked in December 2007. Benefits, including insurance, paid leave, and retirement and savings, accounted for 30.2 percent of this figure, or $8.49 per hour. The magnitude of this amount underlines the importance of carefully considering what is worth purchasing for the employee benefit dollars spent. Since cost is a limiting constraint for employers, it is appropriate to consider how dollars spent on long-term care might be managed to provide the appropriate trade-off with other employee benefits.

A rich long-term care benefit with full vesting, no waiting period, and in which the employer makes all contributions could represent a significant cost to the employer. We estimate that a rich plan would increase the total cost of compensation by about 3% to 4%. However, long-term care is a benefit where the payout is expected a long time after employees are hired. Vesting and waiting period rules for group long-term care benefits would allocate full benefit dollars only to the most loyal and experienced employees, thereby keeping costs down. Hence, choosing an appropriate vesting schedule, waiting period, and employee contribution level can decrease these costs substantially. We estimate that a less expensive plan, with vesting schedule, waiting period, and employee contribution levels chosen to match the needs of a specific employer could represent as little as 0.5 % increase in total compensation cost. Thus, the cost of the benefit becomes a small add-on to the total cost of an employee's benefits.