PPACA and Long-Term Care Insurance: An Option, Not a Mandate - At Least For Now

Health Reform Alert

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PUBLISHED ON: January 18, 2011

While health care is the focus of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively known as PPACA), enacted in March 2010, employers are facing many related questions regarding the impact of the act, if any, on other types of employee benefits. A prime example is whether the act affects the rights or obligations of employers to offer long-term care insurance to some or all of their employees.

The answer is that, except in one possible circumstance, PPACA does not affect an employer's provision of long-term care insurance to any of its employees. If an employer wishes to offer this benefit, it is free to do so; if the employer has no interest, it has no obligation. This does not mean, however, that PPACA, the most comprehensive health care reform law in our history, has no provisions at all regarding long-term care. It has a few. For example, there are incentives within PPACA for states that offer home- and community-based services as long-term care alternatives to nursing homes. There also are provisions that aim toward improving the quality of long-term care hospitals and improving staff training in long-term care facilities.

In addition, PPACA includes the Community Living Assistance Services and Support Act (CLASS Act). The CLASS Act is a voluntary, federally administered, worker-financed long-term care insurance program, designed to go into effect around 2012. Even when effective, however, the CLASS Act should not affect an employer's ability to provide long-term care insurance to one or more of its employees.

The one exception to keep in mind regarding long-term care insurance is whether such insurance might eventually be viewed as a "Cadillac" benefit subject to additional taxation, especially for employers who offer it to some employees but not others. PPACA provides for Section 4980I of the Internal Revenue Code to impose a 40% excise tax beginning in 2018 on insurance companies, or employers who self insure, on the cost of health insurance in excess of $10,800 for individual coverage or $27,500 for family coverage (indexed for inflation).

At least at present, all indications are that long-term care insurance will not be calculated as part of this excise tax. In determining whether such excess cost exists, Code Section 4980I(d)(1)(B)(i) expressly provides that any coverage "for long-term care" shall not be included in this calculation. But employers who choose to offer long-term care insurance should keep in mind that 2018 is a long way off. Many things can change between now and then and the details of this excise tax are certainly among them.

The prudent course is for employers to keep one watchful eye on the statute as it phases in over the next seven years and another watchful eye on the implementation regulations.