Long-term care insurance comes of age: coverage for extended care is gaining acceptance as an employer-sponsored benefit - Agenda: Compensation & Benefits

HR Magazine, July, 2002 by Carolyn Hirschman

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--longterm 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 Washington, 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.