Benefits Bulletin

LTC coverage:
Poised for takeoff

By Helen Lippman, Contributing Editor

With baby boomers rapidly swelling the ranks of the nation's over-50 population, long-term care insurance is an employee benefit that has come of age. In many ways, it's a no-brainer: Offering LTC coverage lets you support your workers and expand your benefits package without incurring extra cost. That's because firms typically make the arrangements but do not contribute to the premiums.

Despite these advantages, just 7 percent of employers with 10 or more workers offered LTC coverage last year, according to William M. Mercer's 2000 annual employer survey. That same year, the Life Insurance Marketing and Research Association International (LIMRA) reports, the number of Americans with job-based LTC coverage grew by 19 percent.

About 3,800 private employers sponsor long-term care insurance for a total enrollment of 929,000 employees. Adding in public employees pushes that number over a million. While growth in 2000 fell below the 1999 increase, "the outlook for long-term care is excellent," says Patricia Ash, a LIMRA senior analyst.

Legislative forces

The graying of America is one reason. Another is the Long-Term Care Secu-rity Act, signed last September, which calls for the government to offer insurance to its employees. In 2002, some 20 million people—active and retired federal employees, military personnel and postal workers as well as their parents, in-laws, stepparents and adult children—will be eligible. "That's likely to initiate a wave of employer sponsorship," Ash observes.

"The probable passage of favorable tax treatment will also add impetus to the market," he adds. Currently, employers could take deductions for LTC premiums, but they're almost never the ones who pay. Employees, on the other hand, can take deductions only if their total medical expenditures exceed 7.5 percent of their gross income.

The Health Insurance Portability and Accountability Act of 1996 prohibits employees from paying for long-term care coverage with pre-tax dollars, as they typically do for health insurance, points out Jeremy Pincus, a director at Forbes Consulting Group and an Employee Benefit Research Institute (EBRI) fellow. Nor can they use pre-tax earnings set aside in flexible spending accounts.

"The exclusion was deliberate because lawmakers worried about losing billions in revenue," Pincus says. They needn't have worried. Although take-up rates fluctuate from less than 1 percent to nearly 50 percent, on average only 5 to 10 percent of workers whose firms offer LTC group coverage actually buy it. Anticipated passage of companion bills before the House and the Senate would give workers some measure of tax relief, although no one is certain of the extent.

Interest across the board

The bulk of the recent growth has been in the large employer market, says Florence Katz , senior consultant and LTC leader at Mercer. Nearly three in 10 firms with 20,000 workers or more offer the insurance. (See the chart.)

"We're seeing more activity in the public sector," Katz adds. "We've been working with some states, all with more than 20,000 employees, that are looking at this for their active workers and retirees. And there's more interest overall. The subject comes up repeatedly."

A consortium of more than 25 Fortune 500 firms representing close to a million lives may be the biggest example of private sector growth. The coalition entered the marketplace in 1998, says Jodi Anatole, vice president of the long-term care group at Metropolitan Life, "then designed a program, went out to competitive bidding and selected MetLife." She declines to name the member companies but reports that their insurance packages are still being rolled out.

John Milam, a senior VP at Willis, a benefits consulting firm that serves small and midsize employers, attests to the high level of interest in this market as well. "We're getting a lot of inquiries about LTC because it's a key issue for the sandwich generation—baby boomers taking care of parents and children simultaneously," he says. "They're the ones in the HR management positions. Often, they're painfully aware of the expense that comes with long-term care, and they have a lot of personal interest." But he, too, sees extremely low participation rates.

Satisfaction all around

So why offer it? "Because voluntary benefits are all about helping employees have choices that meet their needs," Milam says. "They're a way for companies to help employees do things for themselves that they can't do on their own." And it's an easy way: The only commitment for a company that agrees to offer an LTC plan is to set aside time to have it explained by an outside professional and to facilitate the payroll deduction.

Firms that offer coverage through an affinity program like the one CNA LTC offers don't even have to do that. "Employers can be as involved as they want to be," says Brad Bahr, a marketing executive in Nashville, "but all they have to do is promote it to their employees." Under a plan like those sold to groups like the Lions Club or the Chamber of Commerce, an employer can offer the insurance at a discount of 5 to 20 percent. "We expanded the program last December 1," Bahr says, "and we've had a tremendous response." The key difference between this and a standard offering is that it is not a group plan: Every enrollee has a separate policy and is subject to medical underwriting, with no guarantee of coverage.

An EBRI Issue Brief last year reported on studies showing that 70 percent of employers that have begun offering an LTC benefit are glad they did. "Employers are looking for things they can do to leverage their benefits packages that make them appear benevolent and all-encompassing," Milam notes. "And this is one more item that says, 'Look, we know that some of you are dealing with this, and if you want to address it for yourself and your family, we make it easy with a group rate.' Whether or not an employee chooses to participate should not matter."

Gerry Norton, employee benefits coordinator for Marin County (Calif.) in San Rafael, agrees. The county began offering group LTC insurance a couple of years ago, "when employees asked if we could look into it." The county, which has some 1,800 full-time equivalents, has not had a lot of people actually purchasing it—about 30 to 40 have signed up. Yet Norton would not have it any other way.

"You betcha," he responds un-equivocally when asked if an LTC benefit is worth having. "It's expensive—prices vary considerably depending on whether you choose a flat rate or inflationary adjustment, the duration of the coverage, the daily payment rate and—most notably—your age." Typically, employees don't feel the need when they're young enough for the rates to be affordable. They begin thinking about it as they approach retirement age, only to find that the premiums have become prohibitive.

Pumping participation

But there are strategies employers can take to boost employee participation, industry experts advise. Broaden the scope of the offerings, for one: Policies that cover various types of care—nursing home, home care and adult day care, for instance—may attract more en-rollees, as do those that offer a range of duration and cost options.

Strong communications and easy enrollment help, too. Targeted marketing may be effective as well, particularly among large firms, MetLife's Jodi Anatole adds.

The idea is to really focus on reaching the people most likely to buy the coverage. "Firms announce the rollout to all employees, of course, but follow up with those who show interest in more information. This is a departure from traditional benefits, where everybody has to be informed of every development," Anatole says.

Keeping explanations simple and streamlining the enrollment process may do the trick, too. "We're recognizing that people don't want every minute detail," she explains. They just want a clear understanding of what it is and how it works. "We partner with employers to figure out a marketing strategy," she concludes, "then we go in and describe how the policy works. We've found that the relationship between employer and employees matters—the greater the affinity, the greater likelihood of a good participation rate. But we're the ones with the expertise in long-term care insurance, and we want most communication and questions to come to us."

Helen Lippman. LTC coverage: Poised for takeoff.

Business and Health

2001;5:47.