Long-Term Care: Why HR Should Care


By Alison Stein Wellner
May 14, 2004

For HR professionals, the problems associated with aging go beyond the curse of crow's feet or the scourge of a sagging bottom.

Today, nearly one-third of adults provide care to an older relative, a noble act that costs businesses between $11 billion and $29 billion in lost productivity each year, according to a MetLife study. And as a whole, our workforce isn't getting any younger. While the average age of the U.S. population continues to climb, life expectancy grows ever longer. If your employees aren't worrying how they'll manage their own care or help care for loved ones during the golden years, they will be soon.

That's where long-term care insurance (LTCi) comes in. LTCi covers what medical insurance does not: the cost of care in a nursing home, assisted living facility or at home. Employees can use this benefit to cover the cost of care for an older relative in addition to preparing for their own future.

"Long-term care insurance is expected to become the most sought after benefit of the next decade," says Murray Gordon, president of MAGA, Ltd, an LTCi agency in Deerfield, Ill. "The reasons go to the heart of the workplace. As our population ages, more and more employees are stepping into the role of caregiver for a parent, an older relative or a friend. This creates problems for workers who face time and financial pressures, and for employers who suffer lost productivity," he says. As today's workers provide care for older relatives, their thoughts will likely turn to how they'll manage their own care down the road.

No wonder that employee demand for LTCi is on the rise. "For LTCi, the compounded annual growth rate since 1998 has been 27 percent," says John Noble, director of product market development for UnumProvident, in Portland, Maine. "More than 6,000 employers are now offering LTCi to their employees, and more than 5.5 million Americans now possess private LTCi protection," he says. Growth has been helped by the fact that LTCi can be quite affordable, particularly for employees under the age 50. Policies can run as cheap as only a few dollars per employee, per month.

Not Yet at Its Peak

But while demand is on the rise, it's not yet where it could be, says Marilee Driscoll, a Plymouth, Mass.-based consultant and author of The Complete Idiot's Guide to Long-term Care Planning. Many people shy away from discussions about LTCi because it's unpleasant to contemplate a time when we'll be unable to care for ourselves, she says. Also, employees are unlikely to rank LTCi high on their benefits priority list, because they don't fully comprehend how expensive long-term care actually can be, says David Keyt, employee benefit specialist with The Rollins Agency in Westchester, N.Y.

It's also possible that the administrative burden on HR, and the cost to a corporation, is keeping LTCi from reaching its full potential. "It is another benefit with associated administrative duties," says Noble. "You'll need to communication with all employees on the offering and do day-to-day maintenance, as with any other insurance product," he says. (However, Noble points out that since LTCi has a low-claims volume, the administrative burden of LTCi is much less than many other insurance products.)

And while the cost may seem modest in an era of rapidly rising health care costs, an additional benefit may still be hard to shoulder. "With employers struggling to control double-digit health care cost increases, adding LTCi is difficult," says Weyt.

A Complex Offering

For employees and HR alike, the range of options associated with LTCi policies can be daunting. "LTCi is, without a doubt, the most complex insurance product anyone will ever buy," says Driscoll.

LTCi comes in two basic flavors: group and individual. Larger companies typically offer group policies. The advantage is that these are often less expensive than individual policies; the down side is that they require more administrative work and limit the number of choices you can offer employees. Individual policies are slightly more expensive but are most often the choice of smaller companies because a broker will help administer the plan-and because it allows you to offer more options to each employee.

The premium depends on elements of your plan design, including:

* Elimination period. This is the LTC equivalent to the deductible. It's the period of time you'll have to pay out-of-pocket at a long-term care facility before the benefit kicks in. The standard is 90 days, but you can make a policy more or less expensive by changing the elimination period.

* Amount of coverage per month. This is the heart of the policy-the amount that the insurance will pay for a nursing home, assisted living or home care agency each month. You can change the coverage amount, which changes the premium. Common coverages are in the $1,000-$2,000 a month range.

* Home care coverage option. Home care is increasingly popular. Add it into your LTCi policy and it could increase your premium by as much as 40 percent.

Employers can pay anything from zero to the whole thing. The total cost depends on how much of the premium is covered by the employer, and whether the employer picks up the tab for spouse and family, too. Also, some employers allow employees the option of "buying up" from a basic plan by paying a higher premium.

The more an employer covers, the more valuable the benefit is for recruitment and retention-and the more attractive it is to employers, says Gordon.

Making Wise Choices

With all of these options to consider, it makes sense to start with an employee survey, to see whether the benefit is of interest to employees and what type of coverage would be most in demand, suggests Noble.

"Once the decision is made to offer LTCi, then the carrier selection is very important," he says. "Always look at the carrier's reputation, ratings and position in the marketplace," he urges. Since this is a benefit that may stretch out over decades, it's even more critical to make sure that the carrier is going to be around to pay out on claims.

* Is the coverage worthwhile? It's important to make sure that the amount of coverage is adequate, not just today but down the road.

* Is there inflation protection? A period of high inflation can endanger the coverage.

* What is the definition of long-term care? What exactly are you buying with the plan? Does it include nursing home care, custodial care, at-home care? Are there any particular restrictions for any of these?

* Are there any pre-conditions? Requiring either an "acute" condition or a hospitalization before the benefits are payable could make the policy less valuable because it would exclude chronic illnesses. Many of the most common debilitating illnesses of older age are chronic conditions, including diabetes and arthritis, so it's important to make sure that they're not excluded.

* How is the policy transferable on leaving employment? Is it convertible to an individual policy? If so, is the conversion policy the same as the employers' policy and what are the premiums?

In addition to the nuts and bolts, you should evaluate a carrier's employee education strategy. At Children's Memorial Hospital in Chicago, the organization is currently looking into adding LTCi as a benefit, says Ellen Vebber, director of compensation and benefits. In addition to assessing the reliability and stability of the insurance carrier, and looking for a carrier with flexible options, they're evaluating the education that potential vendors would provide their employees.

"Long-term care insurance can be expensive and extremely difficult to understand," Vebber says. "Taking this into account, we've researched several programs, wanting to be sure the program we select provides a great deal of education for the participant to make wise decisions."

It's also important to assess how LTCi is going to fit into your total benefits mix- as Children's Memorial is doing. "Our promise to our employees is to provide a challenging yet compassionate work environment, to help employees achieve their professional and personal goals," Vebber explains.

"We believe we help employees achieve their personal goals through our benefit programs. The addition of a long-term care insurance program would enhance the choices available to our long-term and older employees in our workforce," she adds.

No one looks forward to the infirmities that accompanying the sunset years - needs that could go unmet as an aging population faces limited government assistance. And that's precisely why LTCi is likely to become the "choice enhancement" employees will increasingly value in an employer's benefit mix.