Benefits Alert: Be on the Lookout for the LTC Payroll Tax

How Employers can stay ahead of the LTC Crisis with a New Benefit

Are you a Human Resource Employee Benefit Manager, or Employee Benefit Consultant?  Remember how PFL/PMFL expanded across the country so quickly and consumed so much of your team’s time and energy?  Still having nightmares?

Multiple States Considering Implementing Long-Term Care Payroll Tax

Thirteen states are considering following Washington State’s lead in taxing those who do not own Long Term Care Insurance, including the State of New York. 

Washington State’s legislation aims to help address the challenge of Long-Term Care.  Washington State employees will now pay a .58% payroll tax (per $100) unless they could provide proof of qualifying long term care coverage.  As a result, Employers across the State of Washington scrambled to find a LTC solution to help employees avoid the payroll tax and receive better coverage from the insurance industry.

Washington residents were given a short period of time to secure a qualified long-term care policy in place, as permitted to avoid the payroll tax of 58 cents on every $100 earned. The exception application deadline aligned with the initial programs effective date, on November 1, 2021. Washington State’s legislation implementation was delayed 18 months, to July 1, 2023. The application deadline remained November 1, 2021.

Said another way, an employee earning $100,000 can expect to pay a payroll tax of $580.  

What does the Washington LTC payroll tax program provide for a long-term care benefit?  Those that do not own a long-term care policy and therefore subject to the payroll tax, will be eligible for a state-supplied lifetime benefit maximum of $36,000 to pay for long-term care services need.  Considering the high cost of long-term care services in most states, the Washington plan is barely adequate to cover the cost of care.

New York State Proposes Long-Term Care Payroll Tax

Now that Washington has taken this action, other states are in the process of proposing or implementing their own LTC tax programs.  Like the path of PFL/PMFL, New York and California are the states that appear to be closest to add a tax if individuals don’t own a long-term care policy.

New York Senate Bill S9082 would establish a Long-Term Care Trust Program to provide New York workers with state-run long-term care insurance coverage, funded through a payroll tax on New York workers.  The purpose of S9082 is to create another method of financing the cost of long-term care expenses, for residents that do not own or can’t afford private long-term care insurance, in the event they are unable to care for themselves due to a loss of Activities of Daily Living (ADLs) or Cognitive Impairment.  Essentially, the bill purpose is in part to help alleviate the pressure that long-term care expenses places on the state’s Medicaid program.

The proposed NY Senate Bill S9082 does not provide a large window for individuals to purchase LTC insurance.  The bill requires that private LTC coverage be in place prior to the law going into effect, to be exempt from the LTC payroll tax.  The NY LTC payroll tax could be as high as 99 cents on every $100 earned; that equates to a $990 payroll tax for an employee earning $100,000.

Why are States Considering Implementing a Long-Term Care Payroll Tax?

The stress on Medicaid is tremendous and expected to increase.  Medicaid is funded on a federal and state partnership basis and is the country’s primary payor of long-term care expenses.  To qualify for Medicaid benefits, the individual needing care must have little to no income or assets; essentially impoverished.  Americans who may otherwise be financially “well”, but fail to purchase long-term care insurance, must pay for their own care (or have family members provide care), which often is a recipe for financial ruin. 

A state long-term care program funded via the payroll tax, would relieve some pressure on Medicaid, and provide a minimal level of protection for those that do not own a long-term care policy.

Long-Term Care services are expensive, and the cost is increasing every year.  Health Insurance and Medicare to not cover the costs associated with long-term care services.

Considering that the cost of care in a Nursing Home is on average $12,000/month in the Northeast/Mid-Atlantic states, with the average stay in a home of 2.5, the financial impact to a household for one LTC claim can easily exceed $375,000.

The Washington State long-term care tax, which provides up to $36,000 of benefit, doesn’t “scratch the surface” and leaves its residents financially vulnerable.

The Odds of Needing Long Term Care Services:

The risk is significant.  50% of Americans will need long term care services.  Further, 40% of those that need care, will need care before turning age 65.  Americans are financially exposed to the risk and costs associated with long-term care services.

How Employers Can Help Their Employees:

Affordable long-term care insurance coverage is available as an option to the payroll tax.  Comprehensive coverage can be offered as an Employee Benefit leveraging Life/LTC hybrid products.  These “hybrid” products are offered on a Guarantee Issue basis, via payroll deduct, customized at the employee level, and are individually owned and portable. As an Employee Benefit, the coverage can be offered on either an Employer-paid or a 100% Employee-paid basis. 

These plans meet the need for life insurance protection, in addition to the qualified long-term care benefit exempting employees from the payroll tax. If the employee doesn’t need to use the LTC portion of the plan, the employee would still be eligible to receive the life insurance benefit.  And, in many circumstances and depending on an employee’s age, a Life/LTC hybrid plan can provide the same or higher level of protection, for much less than the payroll tax. 

The Good News:

The good news for Benefit Managers and Human Resource professionals is that installation of Life/LTC plans is simple with a firm that specializes in these plans.  The plan can be installed as a part of Open Enrollment, but more often and best enrolled as a stand-alone enrollment.  Coverage can be enrolled leveraging enrollment technology, and/or via one-on-one sessions with a benefit counselor – virtual or in person.

The Final Word:

The Aging of America, high demand for long-term care services, pressure on Medicaid, and new State legislation have all culminated in what can be called a “long-term care crisis”.  Resembling a similar path as PFL/PMFL, an expanding number of states are drafting and introducing legislation like the State of Washington’s program.  While these programs are designed to alleviate the pressure placed on Medicaid (a state/federal partnership program) by rising long-term care expenditures, the resulting payroll tax is expensive, and another administrative burden for Employers.  Further, the coverage amounts provided under the state programs, are insufficient. 

Employers can help Employees avoid the payroll tax and secure more comprehensive benefits, by offering an affordable Life/LTC Hybrid Employee Benefit Program.  Washington and New York’s programs provide a small one-time window for employees to secure private long-term care coverage to be exempt from the payroll tax.  Employers can avoid the blitz and frenzy that Washington Employer’s faced, by pro-actively introducing a Life/LTC Hybrid program.  Done right and in advance, Human Resource Employee Benefit Managers and Employee Benefit Consultants can minimize the pain felt with the roll-out and expansion of PFL/PMFL.

Navis Benefits Group, LLC offers Life/LTC Hybrid programs that’s a proven solution for our Employee Benefit Consultant partners, Employers, and Employees.

The Employee Benefits “New Year’s Resolution”: HR Benefit Priorities

It is “priority” meeting season for human resource professionals; the time of year when HR teams reevaluate their current benefit offerings, enrollment technology platforms, employee communication processes, carrier relationships, and initiatives. Said short: it is time to identify their 2023 HR and Benefit Priorities.

Since medical insurance is a core benefit for every employer, and one of an employer’s biggest expenses, it is no surprise that medical insurance will continue to be a focus in the New Year “priority” conversation.

However, the focus on medical insurance and the status quo with “ancillary benefits” is proving to be a broken solution. Ancillary benefits are most commonly Group LTD, Group STD, Group Life Insurance, Dental and Vision. Overshadowed by the focus on medical insurance, ancillary benefits become stagnant, old, and broken. Plan features and definitions become outdated, growing benefit gaps go unnoticed or unresolved, employee’s knowledge and sincere appreciation of the benefits wither, and employers lose the competitive advantage to attract and retain that they once had with innovative benefits.

Adding salt to the wound: most employers have not seen the rate decrease that they deserve and should expect with ancillary benefits. HR Teams and Employee Benefit Consultants have grown so accustomed to receiving medical insurance premium increases, that a “no change” ancillary benefit renewal is a blessing. It also justifies the rubber stamping of the ancillary benefits, so the conversation can move to the all-important medical insurance.

This is where things go wrong, and the opportunity to design a better benefits program missed by HR Teams and Employee Benefit Consultants. The ancillary renewal goes unchallenged leaving savings on the table. HR Teams and Consultants neglect to benchmark ancillary benefit plans against peers, and gap analyses not performed. Open enrollments with Guarantee Issue not negotiated; low plan participation rates not rectified; and new innovative enrollment and communication tools are not employed.

If given the attention they deserve and with help, HR Teams can update old ancillary plans to a state-of-the art offering, often with savings, plan enhancements, guarantee issue, and an improved enrollment and employee education approach. This helps lay the foundation for a truly competitive benefits program.

With the “gaps” in ancillary coverage identified, “supplemental” or “specialty” benefits can truly help an employer design an employee centric benefit program, which allows the employer to better compete with its peer group for top talent. These benefits include Supplemental Executive Disability Insurance, Voluntary Supplemental Disability Insurance, Voluntary Worksite Benefits, Executive Life, and Long-Term Care coverage. While ancillary benefits provide a great foundation, by design gaps in coverage will remain even after a plan review and update. Supplemental and specialty benefits help fill the remaining gaps and can be employer-paid or voluntary.

An overhauled and updated benefit plan will resonate with employees, when packaged and gift wrapped the right way. A new employee education approach, using state of the art tools; an updated enrollment platform using artificial intelligence to help with the education and decision-making process; and human assistance via face-to-face or virtual benefit counselor support, are ways to appropriately package and gift wrap the new benefit program.

As we begin the New Year and identify our 2023 resolutions, I challenge HR Teams and Employee Benefit Consultants to re-think the attention ancillary and specialty benefits receive this year. Make your 2023 resolution one which will give greater priority to the non-medical benefits and will allow you to truly upgrade your benefit program.

Check the Health of a Group LTD plan with a Gap Analysis

A simple "gap analysis" of an Employer's Group LTD plan, can help identify coverage gaps, and minimize the financial burden a disabled employee might experience.

Imagine the emotion and distress a disabled employee experiences, when he/she expects to receive 60% income replacement from the employer’s Group LTD plan - but receives 30% of pay or less.  And consider the impact to employee moral witnessing their co-worker dealing with the disability, and the significant financial dilemma.

Employer’s Group LTD plans provide great “basic” protection, but inherently have plan limits and shortfalls which are often overlooked.  A gap analysis can identify the Group LTD plan shortfalls and determine if a Supplemental Income Protection plan can help address the shortfalls before it’s too late.

Happy 1st Birthday!!!

I am both thrilled and humbled to share that today we celebrate Navis Benefits Group’s 1st Birthday!

After a successful 25-year career working for one of the industry’s best, making the move to start my own firm was a risky, and frightful proposition to say the least. But it was a dream that I had long wanted to pursue.

Without the support, encouragement, guidance and advice of my former colleagues, business partners, employee benefit consultants, human resource professionals, friends, and my family, I would not have had the courage to pursue my dream. You have helped make the dream a reality!

I am forever grateful to those employee benefit firms and employers that gave Navis Benefits Group an opportunity to partner during this first and vitally important year in business. The business results were stronger than anticipated, and Navis Benefits Group is proud to celebrate this milestone achievement with you.

A very special thanks to my wife Christina, and my three growing boys, who have been my inspiration and motivation to make this dream a successful reality. The sacrifices you’ve made this past year run deep, and your support and love has been unwavering.

Navis Benefits Group is a “specialty benefits” focused Firm, focusing exclusively on non-medical benefits to include Executive Disability Insurance, Voluntary Supplemental Disability Insurance, Executive Life Insurance, Long Term Care Insurance, Voluntary Worksite Benefits, and Benefits Enrollment/Communication solutions. We partner with Employee Benefit Firms as their outsourced specialty benefit consultants.

I look forward to the excitement and continued growth this next year, and on-boarding new Employee Benefit Firm and Employer partners.

Happy 1st Birthday, Navis Benefits Group!

Best,

Jamie Reidy

Managing Partner & Founder

Partnership

How one Employee Benefit Firm solved income replacement gaps for their Employer clients, while generating $235,800 of additional revenue:

The two biggest challenges most Employee Benefit Firms face when it comes to providing a full suite of benefit solutions are shelf space, and specialization. And we have all heard the phrase “Jack of all trades; Master of none” …

Most Employee Benefit Firms dedicate their focus to and specialize in health insurance. Incidentally, ancillary benefits such as Group Disability and Group Life, do not get the complete attention they deserve at time of renewal. Gaps in definitions, plan design, and coverage limits over time can go unchecked. And rightfully so. Health Insurance is both one of the biggest budgetary items for Employers, and one of the highest revenue generators for the Employee Benefit Firm.

Then comes the “specialty benefit” programs. With ancillary benefits already falling in the shadow of health insurance, the “specialty benefits” are often not even on the radar. Specialty Benefits include Executive Supplemental Disability Insurance, Voluntary Supplemental Disability Insurance, Executive Supplemental Life Insurance, Voluntary Worksite Benefits, and Long-Term Care Insurance. These specialty benefits are the products that can truly enhance an employer’s benefit package, while addressing real shortfalls and gaps that exist in ancillary benefits.

Further, the specialty benefits can be an excellent source of additional revenue for an Employee Benefit Firm.

This Employee Benefit Firm recognized the importance of providing best in class solutions for their clients; but also acknowledged the lack of shelf-space to focus on anything other than Health Insurance and ancillary benefits. In the past, this Firm had experimented with offering Executive Supplemental Disability Insurance on their own, unsuccessfully. The Firm’s close ratio was not particularly good, to say the least. The combination of shelf-space challenges, and more importantly the lack of expertise - or specialization - in Executive Supplemental Disability Insurance, were the culprits. It certainly was not the lack of effort or desire to do their best for their Employer clients…

This Firm also recognized the need to find new sources of revenue but was not able to invest in creating a “Executive Benefits Division.”  To do so would be an expensive proposition, with no guarantee of a solid ROI.

Recognizing the power of partnership, the need to better serve their employer clients, and the opportunity to generate additional revenue, the Firm partnered with Navis Benefits Group, LLC, on a revenue sharing basis.

Early results have shown a strong close ratio, with the Firm generating $76,800 of new first year revenue in 2022 from Executive Supplemental Disability Insurance sales. This business will also produce a revenue stream via vested renewal commissions, of $159,000, over the following 9 years. The total projected commissions earned over the 10-year period for this new business is at $235,800.

The Firm was able to generate this additional revenue stream with no out-of-pocket expenses, and with minimal effort.

The Executive Supplemental Disability Insurance allowed the Firm to address income replacement gaps that existed for their Employer clients’ highly compensated Executives, which Group LTD alone could not protect.

This Firm’s willingness to bring alternative and creative solutions to their customers, their humbleness in recognizing they had not been successful trying it alone; and the recognition that there is power in partnership has resulted in a solid source of additional revenue, with minimal time and no financial investment.

Consider partnering with Navis Benefits Group, to provide better benefit solutions with Specialty Benefits, generate additional revenue, with minimal effort or investment. Navis Benefits Group, LLC helps the “Jack of all Trades” provide “masterful solutions” to their clients.

Words Mean Everything

Words Mean Everything

The word-choice we use in ever-day life can have a powerful effect on an action, outcome, perspective, or reality.   

This is holds true in the world of Employee Benefits

Consider that many employee benefits are provided via an insurance contract, word choice – commonly referred to as “contractual language” - can greatly impact the outcome or reality of a claim.

Some Words to Consider: “And” vs “Or”

As an example, let’s consider the words “And” vs “Or”. Group Long-Term Disability (LTD) Insurance contracts define a Total Disability in varying ways.  Employee Benefit Consultants and Employers, elect the appropriate language to meet the occupational and earnings scenarios of their employee population.   A definition of total disability that requires a “loss of earnings and a loss of time/duties” will be treated very differently from a definition that requires a “loss of earnings or a loss of time/duties”. 

The prior definition with the “and” requirement is well suited for a salaried or hourly employee, that will experience an income loss if he/she is not able to work or at the same capacity (loss of duties). 

However, this same word punishes employees that have trailing income/accounts receivables. As an example, an Attorney that is paid while physically disabled (loss of duties) years later from a big lawsuit he/she won while healthy, would not meet the requirement of the “and” definition. Such attorney would likely not receive a disability benefit while earnings are received, even if the income resulted from duties performed prior to being disabled.  The “or” definition of disability would have resulted in a disability benefit payment to the attorney, since the definition requires a loss of time/duties OR a loss of income, but not both.  This same “or” definition, however, does not have an application for a salaried employee who does not have “trailing income”.

The Final Word

Words and definitions have a powerful ability to shape outcome, particularly in the insurance or employee benefit space. Try to pay attention to the phrases and ask yourself what they imply. Words mean everything.

Benchmarking: Common Characteristics of Employers Offering Supplemental Disability Insurance Plans

While over 50% of Fortune 500 Companies, across all industries, offer Supplemental Disability Insurance (IDI) plans, there are several industries that most commonly offer this benefit program to their employees. Supplemental IDI plans can be employer-paid, employee-paid, or shared contribution.

What industries are they, and what are their common characteristics?

Who are they?

·       Law Firms

·       Healthcare

·       Financial Services

·       Pharmaceutical & Bio Technologies

·       Manufacturing

·       Engineering

·       Accounting

·       Sales Organizations

Employers in these industries share common characteristics:

• Incentive compensation is – or becoming - more prevalent in these industries and represents a sizable portion of employees income. Pharma/Biotech, Sales Organizations, Financial Services are examples.

  •   Most Group Long Term Disability (LTD) insurance plans only cover base salary by intent and design. In fact, 78% of Group LTD plans do not cover bonus compensation

• Employees in these industries have a considerable proportion of highly compensated employees.

  • Group LTD monthly benefit maximums may only protect a small percentage of income, much less than the intended 60% replacement target.

• Recruitment and retention of top talent is a central focus; and Employers in these industries are in a competitive environment with their peers for talent.

•  Employees, Executives and Partners in these industries have a strong understanding of the importance of disability insurance.  Notable industries include healthcare/physicians, law firms, and financial.

•  Employers offering Executive Employer-paid Supplemental Disability Insurance, already have a culture of rewarding top Executives with strong Executive Benefits in place, such as with Executive Life Insurance

•  Financial Wellness, including income protection, is a central focus of the Employer’s benefit package and messaging. 

Does your Open Enrollment feel like the benefits experience of the past? Or do you offer the modern benefits experience your employees deserve?

Human Resource Professionals, by re-thinking the open enrollment process and changing your approach to the way benefits are enrolled, you can have a positive impact on your employees benefit experience and their feeling towards the employer.

The Great Resignation has created a heightened awareness around employee appreciation, recognition, and ultimately retention.  Now is the time to showcase both your new benefit offerings, and better communicate what you already offer, to attract new talent and retain your current valued employees.

Embracing modern technology and digital solutions to better engage your workforce, will allow you to focus more on your people and support your business objectives, while reducing time consuming benefits administration tasks. Technology can be complemented with face to face or virtual benefit counselors, or a call center, to provide a more human touch to the open enrollment process.  Human assistance during the Open Enrollment process can also be a way to introduce a new benefits enrollment or benefits administration platform to your employees.  Benefit counselors can help employees learn to navigate and use a new enrollment platform, while educating and enrolling employees on the benefits program.

Digital solutions that can also be leveraged to better communicate the enrollment event, process, and benefits program; and may include a company benefit landing page, text messaging notifications, personalized emails, auto-scheduling tools, silent voicemail drops from Human Resources, and a benefit video library.  Most digital solutions are smart phone ready, meeting the employee literally “where they are”.

A well-designed digital communication campaign, coupled with a modernized benefit enrollment platform and human assistance via counselors or call center, can be a game changer.  As a result, your employees will feel confident in their benefit decisions, have an improved understanding on how to navigate the new benefits enrollment platform, become better consumers of insurance, and acquire a heightened sense of value and loyalty to their employer.

As a Human Resource Professional, employing modern technology for communication, enrollment, and administration will help reduce time consuming benefits administration tasks, streamline, and minimize your open enrollment distractions, and change the way you feel about the Open Enrollment season.