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Give your benefit plan a boost: long-term care coverage

by on
in Employee Benefits Program,Human Resources

Are you and your employees adequately protected in the event of a long-term illness? Despite the potential for dire consequences—such as exhausting their lifetime savings—few people secure long-term care insurance on their own.

It may be time to take matters into your own hands, and create a perk for attracting and retaining employees.

Strategy: Provide long-term care (LTC) insurance (sometimes called "nursing-home insurance") as a company-paid fringe benefit for employees. It offers protection to employees who may be forced to enter a nursing home sometime in the future.

Without that fringe benefit, an employee's family can exhaust their lifetime savings in just a few years. As long as you meet the tax-law rules, your company can deduct the long-term care policy premium payments, and the coverage is tax-free to employees. In effect, it's like an extension of your health insurance plan.

To qualify for tax-free treatment, the LTC policy must provide coverage only for qualified expenses, such as the cost of diagnostic, preventative, therapeutic, rehabilitative and other health care services. However, the benefits may be provided in the form of straight per diems or periodic payments unrelated to expenses.

Benefit available for 'chronically ill'

The qualified-expenses list also includes personal-care services for "chronically ill" people under a doctor-prescribed health plan. For that purpose, a chronically ill person is someone certified during the past 12 months as meeting one of these definitions:

• Physically unable to perform, by himself or herself, at least two activities of daily living (i.e., eating, bathing, dressing, transferring and continence) for at least 90 days.

• Having a similar level of "disability" as defined by the IRS and the Health and Human Services (HHS) Department.

• Requiring substantial supervision as a result of mental impairment.

Tips: You can't offer long-term care coverage to employees through either a cafeteria plan or a flexible spending arrangement (FSA). In addition, the COBRA rules for health-insurance continuation coverage don't apply to long-term care policies.

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