Long term care insurance deserves second look
Employers see advantages of offering coverage
By Len Strazewski
Employers are increasing health plan coinsurance, suspending retirement plan contributions and freezing salaries in their desperate attempts to cut costs during the recession—but they may be starting to spend a little bit more on group long term care insurance.
Long promoted as a family-friendly but expensive insurance product sold on an employee pay-all basis to only a fraction of eligible employees, long term care insurance is getting a new image, industry experts say.
And for the first time, there may be some federal government support for the coverage in the horizon.
“Long term care insurance has been getting pretty exciting over the past five years or so,” says Keith Sypniewski, president and chief executive officer of AssistGuide Information Services (AGIS), a financial services company in San Ramon, California, that promotes and markets long term care insurance and eldercare services.
“While most employers are trying to cut their health care costs and reduce the spiral of their health insurance premiums, more employers than ever are exploring long term care insurance. They are looking at the coverage as a way of giving something back to employees who have been paying more and more out of their pocket for health insurance and seeing their defined contribution balances fall.”
The trade-off can be a compelling strategy if communicated the right way, Sypniewski says. But producers need to make a case for the coverage in the context of future health and life expenses.
“Long term care insurance costs a pittance compared to health insurance, and the premiums are stable over time—compared to the steadily increasing health premiums. By offering long term care insurance and paying for a basic level of coverage, employers are providing for some of their employees’ future health expenses.”
Sypniewski also says that long term care insurance also fits in well as a retirement-related benefit. “Industry research already indicates the retirees can expect to pay more than $200,000 out of pocket, drawn from their retirement savings, just to pay for health-related expenses. Long term care insurance frees up more of 401(k) balances for other life expenses by providing some coverage for home or residential care.”
Guy Bertsch, vice president of long term care underwriting at Chattanooga, Tennessee-based UNUM, agrees. “Employee benefit brokers and human resource professionals are really starting to understand the value of long term care insurance,” he explains. “The premiums are very stable and overall, the benefit is pretty cheap.”
UNUM is the largest of the group long term care insurance carriers, with about 77% of the employer market, according to LIMRA International, the life insurance trade organization. Other large underwriters include Prudential, MetLife and John Hancock Life.
Last year, UNUM executives reported that the company added about 900 new group plans with 63,000 new employees and about 30,000 new plan participants from existing client employers, bringing the company total to about 715,000 insureds.
Bertsch says most of the client employers structure the benefit with a base level of employer-paid coverage, typically a benefit of $2,000 to $3,000 per month. Premium for this level of coverage varies by age but would cost from $175 to $200 per year for a 40-year-old employee.
“For most employers, this is a small fraction of the health insurance premium and often much less than what they are asking from employees in additional contributions to health plan costs and higher levels of coinsurance.”
The group plan would generally provide up to a benefit level of $8,000 per month on a guaranteed issue basis, which would exceed the current monthly national average cost of nursing home care. The coverage is also generally available to spouses, parents and other family members at group underwriting rates and can be written with inflation increase riders.
UNUM executives expect steady increases in participation as Baby Boomers executives age and grapple with the need for long term care for parents and other family members. The challenge helps them realize the value of the coverage for both themselves and other employees.
“Because the workforce is aging and lifestyles change, we realize the importance of going back to our current customers to be sure the long term care insurance needs of their employees are met,” adds John Noble, UNUM director of long term care products. “We also saw a 74% growth rate among our current participants increasing their benefit amount,” he says.
Mary H. Clark, vice president of health and welfare services at Cammack LaRhette Consulting, Inc., in New York, an employee benefits consulting company, says she has also noticed renewed interest in long term care insurance as individuals look for ways to protect income against inevitable future expenses.
“Long term care insurance provides its benefits against the kind of expenses that nearly everyone will experience at some point in their lives, either for themselves or family members.”
Clark recommends that producers focus on the impact of the expense of long term care on family finances and the value of the guaranteed issue features of group coverage that allows family members to buy the coverage at the least expensive rates.
In the meantime, federal legislation may soon make long term care insurance more affordable and easier for employers to add to their employee benefit programs—and provide a new marketing opportunity for agents and brokers.
In late April 2009, Reps. Earl Pomeroy, (D-N.D.), Charles Boustany (R-La.), Allyson Schwartz (D-Pa.) and Ginny Brown-Waite (R-Fla.) introduced The Long Term Care Affordability and Security Act (HR 2096).
The bill would allow employers to offer long term care insurance as part of a cafeteria benefits program and allow employees to allocate a portion of employee benefit credits to pay for the coverage. The bill would also make long term care insurance premiums eligible for payment with pre-tax dollars under a Flexible Spending Account which would reduce the overall cost of the coverage by as much as one-third for some employees.
The legislators say that the bill is designed to help individuals provide for a secure retirement as well as meet the escalating expenses of nursing home and in-home medical care.
“With millions of Baby Boomers facing retirement, it is important for Congress to address the looming long term care crisis now,” said Congressman Pomeroy in a statement. “The Long Term Care Affordability and Security Act takes an important step toward helping Americans prepare for a secure retirement. This bill will increase access to long term care insurance, providing more people with the coverage they need when it matters most.”
Rep. Brown-Waite adds, “Millions of Americans are aging and their long term care costs are escalating rapidly. Especially in today’s economic climate, taking care of a loved one is a financial burden working families are increasingly unable to shoulder. Long term care insurance helps provide the peace of mind our seniors so deserve.”
The bill has already been endorsed by America’s Health Insurance Plans (AHIP), the American Council of Life Insurers (ACLI) and AARP.
Len Strazewski has been covering employee benefits issues for more than 20 years and is employee benefits editor of Human Resource Executive magazine. He has an M.A. in Industrial Relations from Loyola University.