What is it?

1. What is it? An employer-provided benefit similar to health insurance: • covers nursing home or home health care for chronically ill • employer receives tax deduction for premium payment • employee is not taxed for premiums and benefits

2. When is it indicated? • Employer wants to provide benefit that employee might not otherwise be able to afford • Have an older employee group

3. Plan Design • Long-term care (LTC) is expensive; employees will have to pay substantial premiums • Employee tax deductions limited by “floor” for medical expense deductions • Employee cannot pay premium from cafeteria or flexible spending plan • Employer may be reluctant to offer, unlike health insurance, LTC insurance needed by only a few

4. Plan Design • For tax purposes, definition of LTC is strictly limited • COBRA does not apply to LTC insurance • Employer can make LTC available to any employee or group of employees • Plan can cover spouses and dependents on same basis as health insurance plan

5. Tax Implications • A qualified LTC insurance contract: • the only insurance protection under contract is coverage of “qualified long term case services” • does not pay or reimburse expenses reimbursed under Medicare • guaranteed renewable • no cash surrender value or other monetary value • refunds of premiums used to reduce future premiums or increase future benefits • certain consumer protection requirements are met

6. Tax Implications • Same tax treatment as accident and health contracts • Premium paid by employee may qualify as medical expense deduction on income tax, subject to 7.5% of AGI (Sec. 213) • A self-employed person may deduct 100% of premiums (subject to age-based limits) for qualified LTC insurance; limited to those eligible for Sec. 213 itemized deduction

7. ERISA and Other Requirements Long-term care is a ‘welfare benefit’ under ERISA