An interesting long term care idea

A commenter LT posted in response to this post:

a little OT (off topic), but what if LTC insurance were handled like health insurance is now. Your employer can purchase LTC insurance tax free as a benefit for you the employee….

If Duke paid LTC insurance premiums on my behalf, the amount Duke paid  for my premiums would not be subject to income tax and therefore preferenced in the same way that the premiums paid by Duke for my major medical insurance are. These premiums would also be deductible as a business expense by an employer, again like major medical.  Duke offers employees LTC insurance, but pays no premium; the employee pays the full cost to the insurance company, though it is payroll deducted, making it pre-tax, which does convey a tax advantage (I am fairly sure; checking on this).

The commenter goes on to offer an interesting suggestion that I have never heard:

Have LTC insurance be “tokens” where for each amount put in you gain a fixed amount of coverage, rather than as a policy that needs to be continually held. So for example your employer could purchase you 5000$ worth of coverage for 1000$. If the next year they made the same investment you would have net 10000$ worth of coverage, and so on… With such structure LTC plans could be combined/portable even as people switch jobs or lose/gain employment.
Anyways, I know this will probably come with many of the problems of health insurance today (how to cover those whose employers don’t offer insurance, or those who are not working…) but at least it could build a large pool of LTC insured individuals, and enroll them at a time when future LTC needs are hard to predict (30′s-50′s) thus creating good risk sharing.

Now first, let me say that more tax preferenced spending all else equal seems like a bad idea to me. However, given how hard it is to imagine movement ahead on LTC policy after the demise of CLASS, this seems like an innovative idea that could provide a route for persons who wish to save for LTC expenses to do so. Perhaps you could agree with your employer to forego a fixed amount of wages for this LTC benefit, and the tax treatment would expand the amount. And there are so few persons purchasing private LTC insurance that it wouldn’t be that hard to improve on the status quo.

Could this be done under the current tax code? Since private policies cover dollars per day, this is not that different from that. What would be different is when you would be eligible to use the money and for what. For private LTC insurance, typically you must show ADL limitations. How would you police the use of this money? Would it be taxable on the way out like a 401K since it was tax preferenced on the way in? Perhaps you make it tax free on both sides as a way to encourage LTC planning? That would seem to definitely require legislation. Lots of questions about this interesting idea. Thoughts?

Update: This is somewhat reminiscent of this idea I wrote about back in 2008, but idea above would have tax preference and what I wrote was not voluntary.

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