Updated March 25, 2010
Costs for long-term-care (LTC) insurance rose slightly in 2009, about 2 percent above costs in 2008, according to a new study.
A 55-year-old individual considering long-term-care insurance protection can expect to pay $723 per year for a base level of protection if they are married or $1,060 if they are single, according to the annual Long-Term Care Insurance Price Index, published at the end of 2009 by the American Association for Long-Term Care Insurance.
The study measured costs for top-selling long-term-care insurance policies that provided approximately $115,000 in current benefits, with protection increasing yearly as the individual ages. "A solid base plan of protection will grow in value to over $305,000 of protection twenty years from now," explains Jesse Slome, executive director of the national trade organization that conducted the annual study.
For some age bands, the cost of long-term-care insurance experienced a modest 1 percent decline compared to 2008, the study found. "What we did see is a far wider range of prices between insurers offering basically the same coverage," Slome notes. According to the study, costs can vary by as much as 60 percent among insurers.
"The cost of long-term-care insurance is directly related to how much protection you purchase, the age you first apply, your health at the time of application and assumptions that vary from one insurer to another," explains Slome. According to the association, over half of individual applicants are between ages 55 and 64, and one third purchase a daily benefit of between $100 and $149. Most opt for an optional inflation growth rider that increases the potential pool of available benefit dollars each year.
The study reports that a married individual age 55 purchasing $172,000 in current protection will pay about $20 a week ($1,084 per year) by qualifying for available good-health discounts. By waiting until they are age 65, they'll likely pay $63 a week ($3,275 per year) because costs increase with age and they likely will need to buy more coverage to keep pace with inflation, the report concludes.
LTC as an Employee Benefit
Providing access to LTC insurance—often as an employee-paid voluntary benefit, with premiums deducted from employees' paychecks through salary deferral—is an increasingly popular employee benefit. According to the Society for Human Resource Management's (SHRM) 2009 Employee Benefits survey, access to LTC coverage was offered by 39 percent of SHRM members' organizations overall and by 46 percent of those with 500 or more employees.
Large employers often can provide access to LTC coverage under a group plan with lower premiums than employees would pay for individual policies, whereas small employers are more likely to negotiate with an insurer for at least a small discount on individual policies purchased by employees.
Unlike health insurance, premiums on LTC insurance provided through a section 125 cafeteria plan are not excludable from the employee’s taxable income. However, tax-excluded funds from an employee's health savings account can be used to pay LTC premiums up to certain annual limits, even if the HSA is offered through a cafeteria plan. LTC premiums cannot, however, be reimbursed under a flexible spending account (FSA).
[Update: On Oct. 14, 2011, the Obama administration announced in a letter to Congress that the 2010 health care reform law's program to provide long-term care insurance through the workplace, described below, was unworkable and would not be implemented.]
With Health Care Reform, Long-Term Care Option Become Law
Tucked into the landmark Patient Protections and Affordable Care Act signed into law by President Obama on March 23, 2010, is the Community Living Assistance Services and Supports (CLASS) Act, which creates a national social insurance program providing limited long-term care (LTC) coverage through the workplace for employees. The government-run LTC option is intended to provide a baseline for extended care (see H.R. 3590, pages 710-729, for the statute text).
Under the program, all premium costs can be charged to employees. Beginning Jan. 1, 2011, employers would create automatic enrollment procedures that allow workers to opt out, or workers could choose to enroll and pay premiums for five years before they could receive benefits. Premiums would average $123 a month in 2011, would vary with age and would not increase once employees signed up, but they would increase for those signing up later.
After five years of paying into the program, enrollees would become eligible for assistance if they experience limitations in two or more so-called activities of daily living, including eating, bathing, dressing and taking medications. This assistance would take the form of a modest daily cash benefit, estimated at $50 per day for impaired enrollees living in the community, for services such as respite care, home care aides and accessible transportation, and up to $75 a day for enrollees who become institutionalized. These amounts would increase with inflation.
According to an article in the January 2010 issue of the journal Health Affairs, nursing home costs in the U.S. average more than $75,000 per person per year, or $250 per day.
"You do not have to do this on an auto enrollment basis, nor do you have to subsidize it," advises Ken Sperling, global health management consulting leader at Hewitt Associates. The CLASS Act, he explains, "is there because with long-term-care programs you pay premiums before benefits get paid out, and the CLASS Act raises $72 billion over the first 10 years. It's a very attractive revenue raiser to put into health care reform legislation."
"It's an important program, but it's not intended to replace private long-term-care insurance," says Kathy Bakich, senior vice president and national health compliance practice leader at the Segal Co., an HR consultancy. "If an employer already offers a long-term-care program, it should determine how this new benefit is going to interact with its current offering and then provide employees with that information. Employees can opt out, so the education challenge is the key."
"It's plausible that as employers educate their workforce on the CLASS Act deductible and the benefits it provides, they'll consider supplementing it with a private, more extensive LTC coverage option," says Jay Savan, a senior consultant at Towers Watson. "But it's also plausible that they could say, 'I was thinking about offering LTC coverage, but now that the CLASS Act provision is coming in I don't feel as compelled to provide even a voluntary LTC benefit to my employees.' I can see the logic going either way."
He adds, "the employers with whom we work that have seen an opportunity to enhance their benefits program through an LTC offering have done that for a while now. It's not as though they've been sitting on the fence waiting for the federal government to give them a green light. I don't know that the CLASS Act benefit is going to necessarily propel the rest into providing supplemental LTC coverage."
Long-term-care coverage, says Bakich, "is not an easy thing now for employees to figure out." But there is a growing need for employees to plan for their eventual needs. "This is a serious policy problem, people not having access to affordable long-term care, and with the shift in generations we see even less preparedness," she notes. "This is an area where people are just not planning."
Bakich advises, "If you can have discussions with employees and raise these issues, that's all to the good."
Stephen Miller is an online editor/manager for SHRM.
Preparing for Long-Term Care: The CLASS Act, Duke University's Sanford School of Public Policy, December 2009
The CLASS Act: A Flawed but Powerful Game-Changer for Long-Term Care, Kaiser Health News, November 2009
What is long-term care insurance?, SHRM Online Tools and Templates, November 2009
Senate Hearing Probes Long-Term Care Rate Increases, SHRM Online Benefits Discipline, October 2009
Planning for the Future: Long-Term Care as an Employee Benefit, SHRM Online Benefits Discipline, October 2008
Long-Term Planning, HR Magazine, May 2007
Voluntary Employee Benefits Series: Long-Term Care Insurance, SHRM Research, December 2005
Long-Term Care: Why HR Should Care, SHRM Online Benefits Discipline, May 2004
Long-Term Care Insurance Tax-Deductibility Rules, American Association for Long-Term Care Insurance
SHRM Online Benefits Discipline