Long-term care doesn’t just impact the family of an elderly or disabled relative; it impacts your company’s bottom line. And it’s getting worse each year.
When a long-term care issue affects a loved one, that long-term care issue affects every member of the family. Unfortunately for a business owner, this means his or her employees are affected when one of their family members has a long-term care issue too. Recent studies have shown that any given individual has a 50% likelihood of being affected by long-term care in their lifetime, and 75% will be affected by a loved one’s long-term care issues.
An informal poll of our firm’s clients reflects the average costs for skilled nursing care in St. Louis, Missouri is $7,000.00 per month, or $84,000.00 per year. It is much higher than that in other areas of the country.
Given these costs, it’s no wonder an employee would devote more time to finding a solution to these issues than the job they have been hired to do. In fact, if they are also the ones providing care to their aging loved one, this is like your employee having another full time job. The ensuing decline in productivity costs a business owner money. According to the U.S. Bureau of Labor Statistics:
- US businesses lose an average of 2.8 million work days each year to unplanned absences, which cost employers nearly $74 billion
- Work day interruptions due to caregiving for adults cost employers about $3 billion
- Absenteeism due to caregiving for adults cost employers about $5 billion
Unfortunately, this problem isn’t going away. It’s estimated that by 2020, one in three U.S. households will be involved in caring for elderly or disabled relatives, up from one in four today.
With the likelihood of a long-term care issue affecting a business owners employees, and the devastating costs associated with them, it makes sense to provide some solutions to employees in advance, but what can be done?
What is Long Term Care?
When someone has a long-term care issue it means they have issues with at least two activities of daily living or a cognitive impairment (such as dementia or Alzheimer’s). The activities of daily living are bathing, eating, dressing, toileting, continence, and transferring (getting in and out of bed or a chair). The care is considered “long-term” when the need for these activities is expected to continue for at least 90 days.
What Can a Business Owner Do?
Providing long-term care insurance to the business owner, executives and key employees is one piece of the puzzle. In many businesses, especially small to medium size businesses, if long-term care were to prevent a business owner or key employee from being able to work, the business would go under quickly. Providing long-term care insurance to a select group of employees is a great way to hedge your exposure to the risks of long-term care directly affecting your business, plus there are tax incentives associated with providing this insurance.
Premium payments made by an individual are included as a personal medical expense if you itemize on your taxes. Medical expenses exceeding 10% of your adjusted gross income (AGI) are deductible. However, self-employed individuals (including those in sole proprietorships, partnerships, LLCs, and S-Corporations) can write off 100% of the individual limit regardless of the 10% AGI limit, as a reasonable and necessary business expense.
This treatment is similar to traditional health insurance premiums. Likewise, for C-corporations, premium payments are also fully deductible as a reasonable and necessary business expense. This can apply to owners, their spouses, their dependents, and all employees. Tax treatment for benefits received from the policy for employees is very favorable as well. Employer-paid long-term care insurance is excluded from an employee’s gross income and the benefits received are tax free.
But what about the indirect consequences of an employee’s loved one needing long term care that a business owner can’t insure against? Start by providing education to your employees about the risks of long-term care and give them resources to seek out for professional guidance. Long-term care solutions are one of the most misunderstood set of legal and financial rules that exist, and without proper education, it can take years to figure out how to plan appropriately. Inviting a local elder law attorney or a qualified financial professional to speak to employees about these issues can avoid hours of lost productivity.
Long-term care issues are something that can be planned for in advance. A business owner should encourage his or her employees to seek guidance from a legal professional to pre-plan for any issues that may arise with their loved ones. Like most legal and financial issues, advance planning leads to the best (and least stressful) solution when those issues arise.
Brian G. Quinn is an Attorney with the law firm of Quinn & Banton, L.L.P. in St. Louis, Missouri. If you are interested in learning more about protecting yourself, your family, or your business using legal strategies, please contact Brian at 636-394-7242 to schedule a consultation.