Long-Term Care Insurance Comes of Age

By Carolyn Hirschman Jul 1, 2002
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HR Magazine, July 2002Coverage for extended care is gaining acceptance as an employer-sponsered benefit.

As the top HR official in New York state government, Civil Service Commissioner George Sinnott recently helped to plan and roll out a new health care benefit—long-term care (LTC) insurance—for the state’s 300,000 employees and retirees. Lately, as a 57-year-old husband and father, Sinnott has been taking a second look at LTC insurance as he tallies the bills for round-the-clock home health care for his mother-in-law, who has no LTC coverage. He sees the stress and financial drain that unexpected long-term care can place on a family when there’s no insurance to help pay the costs, he says, and now he’s “leaning toward” buying a policy for himself.

To insurance carriers, Sinnott is the ideal candidate for LTC coverage. Employees approaching retirement—particularly the oldest of the baby boomers—are seeing, through the experiences of their parents’ generation, how hard it can be for the elderly to bear the costs of extended care, says Paul Fronstin, director of health research at the Employee Benefit Research Institute in Washington, D.C. Employees “want to be prepared themselves,” he says. For that reason, industry experts say, LTC coverage will increasingly gain acceptance as a means of cushioning health expenses in later years.

Moreover, as LTC coverage catches on with employers, HR will become central to the processes of helping employees decide whether this relatively new type of insurance is right for them.

LTC insurance picks up most or all of the expenses for skilled and custodial care for people in their own homes, in adult day care centers, in assisted-living facilities and in nursing homes. It typically covers medically prescribed diagnostic, preventive, therapeutic and rehabilitative services for patients who are chronically ill or who have severe cognitive impairment, such as Alzheimer’s disease. LTC’s proponents say its costs to employers are minimal: setting up and maintaining a payroll deduction program. Most employer-sponsored group policies are employee-pay-all. Employers that contribute to premiums generally offer a basic plan that employees can enrich by paying more.

Most employers make LTC coverage available at discounted group rates—typically 15 percent below the cost of individual policies—not only to employees but also to their parents, spouses and sometimes adult children, parents-in-law and grandparents. If other family members are covered, advocates say, LTC coverage can bolster productivity by helping employees avoid using work time to give or arrange for long-term care for relatives.

And employees who care for elderly or sick relatives with LTC insurance are twice as likely to stay in the workforce as those caring for relatives without it, according to a 2001 study of 288 working caregivers by the MetLife Mature Market Institute.

Furthermore, proponents say, LTC insurance can be a recruitment incentive, particularly if it’s available at discounted rates.

LTC’s Emerging Growth Path

Although employer-sponsored group plans accounted for only about 1 million of the 6.8 million LTC policies sold from 1993 to 1999 (the rest were sold directly to individuals), group plans are on the rise, according to the Health Insurance Association of America (HIAA), a Wash.ington, D.C.-based trade organization of insurance companies.

Last year, about 4,400 U.S. employers, or 17 percent more than in 2000, offered their employees LTC coverage at group rates, according to LIMRA International, a Windsor, Conn., financial-services research firm. Premiums collected for group LTC coverage rose 16 percent in 2001, to $666 million, from the previous year, and the number of employer-group participants rose 14 percent, to about 1.2 million.

Results of the 2002 benefits survey by the Society for Human Resource Management (SHRM), in Alexandria, Va., show that 48 percent of 508 HR professionals said yes to the question of whether “any aspect of any company-held plan includes” long-term care insurance.

The biggest gain for LTC insurance is coming from the federal government, which recently became the country’s largest employer to provide such coverage. The new federal program offers private LTC insurance at negotiated group rates to about 20 million civilian and military employees, retirees, their spouses, parents, adult children, parents-in-law and step-parents.

In addition, federal employees’ premium payments for the government’s LTC coverage are exempt from federal and state taxes, under legislation signed by President Bush last December. Measures now in Congress would expand tax breaks for those outside government who buy LTC coverage.

What It Covers, What It Costs

Since its debut in the 1960s, LTC insurance has become more flexible, offering broader benefits that recognize the many different ways that care is now delivered. Policies can cover a spectrum of services, from skilled care in nursing homes to housekeeping at home. Coverage also can include care by relatives and other unlicensed providers—and training for them—as well as “alternate plans of care,” which means care that is medically approved even if it isn’t spelled out in a policy.

After selecting an LTC provider, the employer works with the insurer to pick a type of policy and to minimize the number of choices that employees have to make. Employees generally must choose:

  • A daily benefit amount (DBA) for nursing-home care, perhaps $150 per day. Many policies offer low, medium and high options to make premiums affordable to a range of employees. The home-care benefit is a percentage of the DBA and can be as high as 100 percent.

  • A maximum duration of benefit payouts, usually three or five years.

  • A so-called elimination period, which is the time that must elapse between diagnosis or onset of care and the start of benefits. The choices are usually 30, 60 or 90 days. In older policies, the waiting period may be applicable for each new claim. Newer policies generally impose the elimination period only once—between the policy’s effective date and the first claim.

“You have to read the plans carefully to see how they work,” advises Nancy P. Morith, a Princeton, N.J., insurance broker who specializes in long-term care. “You don’t have to insure the entire cost of care, but you have to know what you’re taking on.”

Benefits start after a policyholder has been diagnosed with a severe cognitive impairment or has become unable to perform two or more “activities of daily living,” which include bathing, eating and dressing. Payments continue until the insured’s maximum lifetime benefit, or “pool of money,” is exhausted.

Premiums are based on the level of benefits and the age of the insured person at the time the policy is purchased. For example, a 40-year-old would pay $603 annually for a three-year benefit plan with a DBA of $140 and a 90-day elimination period, according to MedAmerica Insurance Co. of Rochester, N.Y. A 50-year-old would pay $940 a year for the same policy; a 60-year-old, $1,567.

Experts recommend an inflation protection option, which allows coverage to expand over time. There are two types. An annual adjustment automatically increases benefits, usually by 5 percent, in return for higher premiums from the start. Buy-as-you-go allows the purchase of additional coverage every three years or so; the cost is based on the insured person’s age at the time of purchase.

Active employees are “guaranteed issue,” meaning they get coverage without submitting medical information. Spouses often must submit some data. Parents and other older relatives must undergo full underwriting.

And LTC policies are fully portable. Many group plans permit continued coverage as long as premiums are paid, even after policyholders leave the employer that sponsors the plan.

Who’s Selling, Who’s Buying

Last year, five companies—Aetna Life, CNA Insurance Co., John Hancock Life Insurance Co., UNUMProvident Corp. and Metropolitan Life Insurance Co.—collected 81 percent of the premiums for employer-sponsored LTC coverage, says Jennifer Douglas, project director of LIMRA’s group long-term care survey.

Insurers offering LTC coverage generally target employees in their 40s and 50s who are planning for retirement. Says Dennis Healy, product manager for group long-term care coverage at John Hancock: “We like to look at companies where workers make higher-than-average salaries. Lower-paid employees just don’t have the disposable income.”

The average annual premium for a group LTC policy is $548, according to LIMRA. Although insurers counter that a nursing home can cost $50,000 to $100,000 per year and LTC would cover the bulk of it, premium cost is one reason that employee participation rates for LTC coverage are low—6 percent to 15 percent, according to HIAA. Other reasons include complexity of the product, employees’ lack of familiarity with it and denial about the eventual need for long-term care, studies show.

Education to Close the Deal

The keys to getting employees to sign up for LTC insurance, experts say, are the employer’s endorsement and a thorough education campaign. Typically, insurers do the bulk of marketing and communications work, from introductory e-mails through enrollment meetings. Once a plan is set up, HR has to provide access to employees and arrange payroll deduction for premium payments. Steve Whelan, director of group sales for MedAmerica Insurance, says, “We don’t mind doing all the work, but [HR] needs to run traffic for us.”

The first step in education is to talk about risk and the fact that other types of insurance, except for Medicaid, don’t cover long-term care services. Sixty percent of Americans will one day need long-term care, and 40 percent of recipients are working adults, according to government data. Insurers walk through various “what if” scenarios to compare the cost of long-term care with and without insurance.

To counter misperceptions about cost, John Hancock mails letters to employees with personalized premium quotes for a plan’s various options, says product manager Healy. John O’Leary, vice president of business and market development for group long-term care at CNA Insurance in Chicago, cites asset protection and how long-term care costs can easily eat up one’s retirement savings.

Education campaigns start at least two months before enrollment begins. Insurers work closely with HR to determine the best ways to communicate with employees. Letters are usually sent home so workers can discuss the benefit with their spouses.

Healy says, “Use as many communication messages as you have available to you.” Many short messages are better than a few long ones, he adds, because people are put off by lengthy, complex documents. Employees can go to insurers’ web sites for details of coverage and enrollment.

When Minnesota offered LTC coverage to 62,000 state and university employees, including their spouses and parents, and to 25,000 retirees and their spouses, it conducted an education campaign in the fall of 2000 that began with a mailed announcement referring recipients to a toll-free phone number and CNA’s web site. CNA and state benefits specialists also held sessions throughout the state.

The result, says Lee Fosz, CNA assistant vice president of group long-term care marketing, in Chicago, was an impressive 18 percent participation rate. It “blew everybody out of the water.”

Although LTC insurance is “still a product a little bit before its time,” says Gary B. Kushner, SPHR, a benefits consultant in Kalamazoo, Mich., “I expect to see much more growth in the next 10 years.”

Carolyn Hirschman is a business writer based in Rockville, Md. She has written for a variety of business publications and has covered workplace issues since 1991.

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