LTC and employer contributions

Employer-sponsored long-term care insurance is more likely to propagate if it’s redesigned into a true group employee benefit. One of the key features of a true group plan is employer contributions toward cost. This element is missing in most voluntary long-term coverage wherein the full benefit cost is passed to employees, resulting in low participation rates and possible adverse selection. Integrating employer contributions into a long-term care plan resolves a number of issues for both parties.

A combination of employer and employee funding is a central tenet of most true group coverages, including medical, dental, life, and 401(k) plans. The presence of employee contributions gives the employees a stake in the coverage, ensures that the benefit has value to the employee, and keeps the cost down for the employer. Employer contributions ensure broader participation, help meet the objective of attracting and retaining employees and providing a safety net, and lower employee costs.

What are the critical questions for a true group long-term care plan?

Choosing the right contribution level is also important. Obviously, a voluntary program costs the employer nothing in contribution costs. On the other extreme, an employer-pay-all program would be expensive, depending on the vesting requirements. Tables 1 and 2 below contrast the relative savings for plans with and without employee contributions for various combinations of vesting and waiting periods. However, even with no vesting or waiting periods, 50% employee contribution rate results in 70% savings for the employer.

In addition, introducing employer contributions into a long-term care plan has a significant impact on adverse selection within the group. While the overall size of the employee base may be large, it is the size and composition of the group that elects to join the long-term care plan that is of greatest importance when creating a covered population that has a good spread of risk. The higher the proportion of the total contribution that comes from the employer, the higher the participation rate is likely to be. This will help spread the risk among more participants, and include employees who would not otherwise have chosen to “self-select” into the plan. Employer contribution is thus clearly another method for reducing adverse selection.

Why is true group long-term care so important?

• Many Americans will have no way to pay for long-term care services when they are needed.
• Insurance for long-term care will not become widespread if only available on an individual basis, which means that the change will need to come first from employers.
• Group coverage needs to include employer contributions to make it affordable to employees and vesting to make it affordable to employers.