By Shapiro, Joel A.
The CPA Journal , Vol. 66, No. 9
Despite the escalating cost of employee benefits, a growing number of small businesses are adding two additional products to their benefits package. That's because the products, voluntary payroll deductions for long-term health care and for life insurance, enable employees to have the premiums deducted from their paychecks at little or no cost to employers.
In particular, the voluntary payroll deduction concept is serving as a partial solution to the potentially devastating cost of long-term health care. Conservative estimates indicate that one of every three Americans will require long-term care (many before they reach old age), and that two-thirds of those who receive it will consume substantially all of their assets in paying for it during the first year.
With such sobering statistics in mind, 13 U.S. insurance companies now offer group long-term health care policies. Though most are designed for a minimum of 200 participants, a few insurers offer group plans for as few as 25 employees. But even companies too small to meet that minimum can realize savings for their employees by buying individual policies together from the same carrier to quality for so called "list-bill discounts."
Estate Planning Tool
Payroll deduction for long-term health care protection can serve as an important estate planning tool. Even for affluent employees, a few years in a nursing home can wipe out an estate. And though Medicare provides for skilled nursing care at home, it does not cover nursing home care or home custodial care. In fact, Medicaid recipients usually must liquidate and deplete almost all of their assets to receive nursing home benefits.
Employer-provided long-term health care policies require that the employer pay for a specified base amount of coverage-usually a monthly benefit ranging from $500 to $2,000 per month-while offering employees the option to supplement that coverage through payroll deduction.
What does that cost an employer? The answer depends, of course, on the base benefit, but also in large part on the average age of employees. Typically, for a $2,000 per month base benefit, the cost of providing a 40-year-old employee with the basic nursing home and home-care benefit is approximately $12.40 per month. Therefore, minimum coverage for, say, 30 employees and spouses whose average age is 40, would cost $8,928 annually. If the average age were 45, the annual cost would be $12,096.
Because the company is paying for the base amount, an employee can, in effect, double his or her coverage for half the costs or triple it for two-thirds the cost. If that seems excessive, consider the fact that nursing home care now typically costs $50,000 to $60,000 a year in New York.
Although for simplicity's sake "employees" are referred to as the plan participants, most group plans accept not only spouses but other immediate relatives, including parents and grandparents. …