Voluntary Employee Benefits Series Part II: Long-Term Care Insurance
SHRM Briefly Dtated
“American businesses lose between $11 billion and $29 billion a year in productivity costs due to workplace disruptions, scheduled and unscheduled absences, leaves of absence, reduction from full- to part-time work, opting for early retirement, or leaving work entirely.” 1
Caregiving in any form is expensive, financially and emotionally. And most people who find themselves in the position of providing care to a relative also find themselves doing double, possibly triple, duty by attempting to juggle a job and a family. For some, attempting to balance their own life and career while caring for another person may jeopardize their employment or even their own health. Long-term care insurance may be a way around this problem. It can protect the insured against the financial risks posed by the potential need for long-term care. By paying a known insurance premium today, the insured can protect his or her current and long-term retirement assets from the risk of erosion due to qualifying, out-of-pocket health care expenses that may arise tomorrow (see Figure 1). In addition, long-term care insurance provides protection and peace of mind for employers and extended family members as well.
An Overview of Long-Term Care Insurance
Long-term care (LTC) insurance picks up most, if not all, of the expenses associated with skilled and custodial care for people who can be cared for in their own homes, in adult daycare centers, in assisted living facilities and/or who require skilled care in a nursing home environment. It is typically inclusive of prescribed diagnostic, preventive, therapeutic and rehabilitative services for patients who are chronically ill and/or who have a severe cognitive impairment, such as Alzheimer’s disease. 2
LTC Plan Features
LTC is a complex product. Before committing to a final long-term insurance plan design, employers should consider working through an insurance broker to ensure a clear understanding of the various policies and plan features available on the current LTC insurance market. For example, does the plan include an inflation protection feature? Does it include nursing home care, custodial care, at-home care, hospice care and alternate care services? Are there any restrictions on these forms of care and, if so, what are they? Are there any pre-existing condition clauses included in the policy? If so, what are they and how might they affect the insured? Are the plans guaranteed renewable, do they have a 30-day “free look” period, cover Alzheimer’s disease, have a waiver of premium provision and offer unlimited or lifetime nursing home maximum periods? Finally, is the plan portable upon leaving employment?
LTC Benefits Plan Coverage
LTC benefits plan costs are a function of the type of policy and the number of choices available to employees. Employees are normally expected to make choices from among a minimum of three coverage components:
A maximum duration over which benefits are paid, usually three or five years.
An elimination period , which is defined as the time elapsed from diagnosis or onset of care and the start of benefits. The choices are normally 30, 60 or 90 days. 3
- A daily benefit amount (DBA) for nursing home care (e.g., $150 per day). Some policies offer low, medium and high option alternatives to make premiums more affordable to employees (e.g., $75 per day = low option plan; $100 per day = medium option plan; $150 per day = high option plan). The home care benefit is then calculated as a percentage of the DBA and can be as high as 100% of the DBA selected. (Note: this portion of the policy is sometimes written as the amount of coverage per month, i.e., in increments of $1,000, $2,000, $3,000 of coverage).
Premiums are a function of the level of benefits selected and the age of the insured at the time the policy is issued. For example, a policy purchased by a 50-year old with a DBA of $75 per day, a 90-day elimination period and a maximum duration of benefit payout of three years will vary significantly from a policy purchased by a 40-year old with a DBA of $100 per day, an elimination period of 60 days and a maximum benefit payout of five years.
LTC Plan Incentives and Eligibility
Employees realize several advantages when purchasing LTC insurance coverage through an employer. First, the rates available are at discounted group rates, typically estimated to be at 15% below the cost of an individual policy. And, the open enrollment process is often extended not only to employees, but also to their spouses, parents and sometimes even to their adult children, parents-in-law and grandparents. The business logic behind extending LTC coverage to other family members is simple, according to LTC advocates: by providing the opportunity for family members to purchase LTC coverage, the employer is also helping to ensure that employees avoid lost work time and the need to take time away from work to arrange for the long-term care of a relative. 4
According to a study by the National Alliance for Caregiving and AARP, the most frequently reported unmet needs of caregivers are finding time for one’s self (35%), managing emotional and physical stress (29%) and balancing work and family responsibilities (29%). 5
Figure 1: Ten Misconceptions That Can Hinder a Comfortable Retirement
Long-term care insurance can help to protect against the monetary uncertainties that can often accompany these misconceptions:
1. Saving too little --Most people have not tried to estimate how much they will need in order to retire, and those who have often underestimate it.
2. Not knowing when retirement will occur-- Many workers will retire before they expect to and before they are ready.
3. Living longer than planned --As individuals learn to manage their own retirement funds, they may not understand that life expectancy is a very limited planning tool (i.e., some retirees will live well beyond their life expectancy).
4. Not facing facts about long-term care --Many people underestimate their chances of needing long-term care; although few own long-term care insurance, most could not afford to pay the cost of extended long-term care themselves.
5. Failing to ensure guaranteed lifetime income --Most will choose to receive retirement plan benefits in lump sum form, passing up opportunities to receive a lifetime pension and/or annuity.
6. Not understanding investments --Due to the growth in workplace retirement savings plans, workers are now responsible for managing investments for retirement. However, many workers are ill-prepared to take on this responsibility.
7. Relying on poor advice --Although research studies report that employees want to work with a financial professional, a significant portion of retirees and pre-retirees do not seek out the help of a “qualified professional.”
8. Not knowing sources of retirement income --Workers often misunderstand what their primary sources of income will be in retirement.
9. Failing to deal with inflation --After retirement, few people decrease their spending to deal with inflation.
10. Not providing for a surviving spouse --This can have serious consequences, especially when the survivor is the wife.
Source: Adapted from LIMRA International’s Press Release, October 24, 2005 6
Literature and Research
Research Findings: Long-Term Care Insurance in 2002 7
This survey, published in June 2004, presents comprehensive findings from the collective research of all long-term care insurers in America. The survey is the definitive source of data on the status of the long-term care insurance market. It is part of a series designed to measure the growth of the long-term care insurance industry and monitor the evolution of long-term care insurance products in the United States. In 2002, 104 companies sold more than 900,000 long-term care insurance policies, approximately 80% of which were sold through the individual market. The study reports that the employer-sponsored market experienced a landmark year in 2002, attributed to the launching of the Federal Long-Term Care Insurance Program. This program made long-term care insurance available to federal government employees and annuitants and their qualified dependents and relatives. The survey reports that all insurance companies offer plans that cover nursing homes, assisted living facilities, home health care, hospice care, respite care and alternative care services. Benefits standard to most plans include case management services, homemaker services, reimbursement of bed reservations in long-term care facilities, coverage of some medical equipment and caregiver training. Interest is growing in one-time lump sum premium payments, premium payments over a 10-year period or “pay until 65” options. Some insurers have implemented these options based on consumer requests. Once approved, all plans are guaranteed renewable, have a waiver of premium provision following the onset of disability and offer unlimited or lifetime nursing home maximum periods, unless otherwise stipulated at the time the policy is awarded.
Kaiser Health Poll Report--The Public’s Views on Long Term Care 8
According to a recent poll, middle-aged adults are more worried about paying for nursing home care than their younger and older counterparts. In fact, more than three out of 10 (32%) adults aged 30-64 said they were “very worried” about paying for nursing home care, compared with fewer than two out of 10 adults aged 18-29 (18%) and just under one-quarter of seniors (24%). A total of 28% expressed that they were “very worried” about paying for long-term care for both nursing home and home health care services. The poll reports that most Americans have had some exposure to nursing homes, either as a patient or as a visitor, with 46% reporting that a friend or family member has been in a nursing home in the last three years. When compared against other health care providers, nursing homes were ranked below drug companies by survey participants who were asked to evaluate whether these providers were doing a good job serving health care consumers. Nurses received the highest overall rating (84%), followed by doctors (69%) and hospitals (64%), with nursing homes (35%) ranking below pharmaceutical companies (43%) and just above health insurance companies (34%) and HMOs (30%). While nearly half (46%) of poll participants felt that nursing homes were providing high-quality services, an almost equal number of respondents perceived the quality of care as less than ideal (42%). In fact, a large percentage of poll participants (41%) felt that being in a nursing home made people “worse off” than they were before being admitted to the nursing home. The poll queried participants in relation to their current knowledge of long-term care alternatives and their costs, which long-term care options they preferred and how they planned to pay for long-term care in the future. The poll revealed that four out of 10 Americans guessed that one year in a nursing home cost between $60,000 and $80,000 (the national average for a private room is approximately $70,000 per year). Three out of 10 (30%) indicated that insurance would be the main source of funding to pay for nursing home care, should it be required, with a smaller percentage indicating personal savings (16%) and/or the federal government (13%). In fact, Medicaid is the largest source of financing for nursing home care (46%) at this time. However, Medicaid does not take effect until after all personal savings and assets have been liquidated and exhausted and the individual is no longer able to pay for the cost of care personally. At this time, only two out of 10 respondents (21%) indicated that they had a long-term care insurance policy. The main reasons cited for not having a policy at this time were cost (59%), never having considered it (32%), policies not considered broad enough (30%), hope that family would take care of needs (24%); belief that Medicare will cover needs (23%); and belief that Medicaid will cover needs (21%).
Caregiving in the United States 9
According to this national survey of over 6,000 adults, from which over 1,247 caregivers were identified, there are an estimated 44.4 million caregivers in the United States. For the purposes of this study, caregivers were defined “as people, aged 18 and over, who help another person, aged 18 or older, with at least one of 13 tasks that caregivers commonly perform.” These individuals are not paid for their services. These activities range from helping another manage finances, shop for groceries and do housework (instrumental activities of daily living) to personal care, such as helping someone get in and out of a chair or bed, get dressed, bathe, use the toilet or eat. The typical caregiver in the United States is a 46-year-old female who has some college education and spends more than 20 hours per week providing care to her mother. The study reports that more caregivers are women (61%) than men (39%) and are typically between the ages of 18 and 49 (58%). Overall, women provide more hours of care and a higher level of care than male caregivers. As a general rule, caregivers are employed (59%) and have had to make some adjustments to their work schedules a result (62%). Because women devote more hours to caregiving, it is not surprising that they also experience a higher level of emotional stress due to caregiving than men (40% versus 26%). The survey reports that the use of paid personal helpers (i.e., health aide, nurse, hired housekeeper or others hired to help) is less common than obtaining help from unpaid caregivers, with only 41% indicating such assistance.
As mentioned previously, long-term care is expensive and the cost of care is escalating. The American Council of Life Insurers projects that long-term care costs will more than quadruple by 2030. Assisted living, estimated at $25,300 per annum in 2001, is expected to reach $109,000 per annum by 2030. Similarly, adult daycare, currently at $50 per day, is projected to reach $220 per day by 2030. Finally, home health visits, currently at $61, are expected to reach $260 per visit by 2030. Employers can help employees find ways to protect themselves against financial hardship through elective voluntary benefits options, such as long-term care insurance, and this will also help ensure a healthier, more productive workplace. 10
1 NAC. (2001). Toward a national caregiving agenda: Empowering family caregivers in America. Retrieved November 18, 2005, from www.caregiving.org .
2 Wellner, A. S. (2004). Long-term care: Why HR should care.
3 Hirschman, C. (2002). Long-term care comes of age: Coverage for extended care is gaining acceptance as an employer-sponsored benefit. HR Magazine, 47, 7.
5 NAC and AARP. (2005). Caregiving in the U.S.: Executive summary. Retrieved November 2, 2005, from www.caregiving.org/data/04execsumm.pdf .
6 LIMRA. (2005). Experts cite 10 consumer misconceptions that can hinder a comfortable retirement [Press Release] . Retrieved November 18, 2005, from www.limra.com/Pressroom/PressReleases/pr052405.aspx .
7 AHIP. (2004). Long-term care insurance in 2002. Retrieved November 15, 2005, from www.ahip.org
8 Kaiser Family Foundation. (2005, May/June). Kaiser health poll report: The public’s views on long-term care. Retrieved November 10, 2005, from www.kff.org/healthpollreport/june_2005/index.cfm .
9 NAC. (2005). Caregiving in the U.S. Retrieved November 15, 2005, from www.caregiving.org .
10 Newman, S. (2002). Insuring your future: What care givers need to know about long-term care insurance. Retrieved November 15, 2005, from www.caregiver.org .
Author: Leslie A. Weatherly, SPHR, SHRM Research Department
Also in the Voluntary Employee Benefits Series
Part I: Voluntary Benefits and Job Satisfaction
Part III: Making a Case for Employer-Sponsored Wellness Programs
This article is published by the Society for Human Resource Management (SHRM). All content is for informational purposes only and is not to be construed as a guaranteed outcome. The Society for Human Resource Management cannot accept responsibility for any errors or omissions or any liability resulting from the use or misuse of any such information.