Next spring, when thousands gather at the 2001 Business Expo at the R.I. Convention Center in Providence, one of the “hot” topics will be long-term care insurance, and the wisdom of offering such coverage to employees. That’s because while in many respects it’s still the “benefits stepchild,” insurance for long-term care is now the fastest growing employee benefit, especially for larger companies.
”It’s probably an outgrowth of a very tight labor market,” part of the cache to retain and attract good employees, said Laurie White, senior vice president of the Providence Chamber of Commerce. “As our generation comes of age it’s an issue a lot of people are confronting in the business world.”
John Finn, vice-president of Braman & White, a Middletown insurance agency and subsidiary of Bank of Newport, calls it “the most critical issue facing Americans.”
The reasons are clear – one out of two people over 65 can expect to spend time in a nursing home – with yearly rates costing at least $40,000 and often twice that much.
Nearly three-quarters of those who end up in nursing homes will lose their savings and other assets to fund one year of care, because contrary to popular belief, Medicare covers only short-term institutional stays, and after that requires recipients to deplete their assets to qualify.
Enter again long-term care insurance, a concept didn’t begin to take hold until the 1980s but now is gaining steam, not only because of aging demographics but also because there’s more wealth around thanks to growth in the stock market.
Five years ago the average buyer of long-term care insurance was 65, today that age is 60, Finn said, with most of the purchasers being well-heeled individuals who wish to preserve their assets.
There’s about a fifty-fifty chance that at least one side of a married couple will need long-term care, Finn said. Folks in their 60s and 70s are retiring to learn “their homes are at risk,” and the guy with half a million in investments can no longer “think he’s sitting fat.”
It’s a rude awakening indeed for such retirees to learn they have to pay “$50,000 to $70,000 a year that they haven’t accounted for.”
Finn recently sold a couple of policies to a husband and wife in their late 40s and the combined yearly premium was $1,400 – while the same coverage for someone in their early 60s would be $2,200 to $2,300 each.” People are starting to realize that buying long-term care at a younger age affords them a more levelly priced premium that includes a cost of living benefit, Finn said.
Although those with assets under $100,000 (besides their home) needn’t purchase long-term care insurance, since ability to pay premiums is a big factor, more people whose assets range between $100,000 and $1 million should consider it, Finn said.
A policy’s cost varies with coverage, payment options and age at which the client buys the insurance. For example, a 55-year-old could pay anywhere from $105 to $1,700 per year, while a 70-year-old could pay from $355 to $5,000 annually, according to the Long Term Care Insurance National Advisory Council.
There are critical tax benefits for companies to offer long-term care insurance, Finn said. Based on the current tax environment a closed corporation can fully deduct the premium for any employee or spouse of any employee. Tax-qualified plans also enable the policyholder to deduct the cost of long-term care insurance as a medical expense, subject to meeting the expense criteria, and proposed legislation would allow individuals to deduct premiums for long-term care insurance the way they do for IRAs.
Additionally, any benefit received in a long-term care policy is tax-free, Finn said.
All this equals growth for long-term care insurance. According to the Health Insurance Association of America, which has been tracking this data since the mid-80s, the number of long-term care policies doubled from about 3 million in 1992 to almost 6 million by mid-1998.
The employer-sponsored market enhanced the expansion by contributing 15 percent of sales between January 1997 and June 1998. By mid 1998, more than 800,000 policies had been sold through more than 2,100 employers.
But despite this growth, there’s more work to do. According to the nonpartisan Employee Benefit Research Institute, less than one-half of one percent of American employers currently sponsor long-term care insurance, even though the benefit is typically paid for entirely by the workers.
Health Insurance Association of America data shows sales also remain concentrated in a few states, with half of all policies sold in California, Florida, Illinois, Iowa, Missouri, Ohio, Pennsylvania, Texas and Washington.
Many employers, especially at smaller companies, believe their employees are too young, transient, part-time and/or low-income to be suitable for long-term care insurance, and for others, lack of awareness and low-priority are the primary obstacles, said Dallas Salisbury, president of EBRI.
Because group long-term care insurance has been widely available for only about 10 years, many benefits managers view it as “too new and untested,” he said.
Christine Lebl, marketing assistant for Amica Life Insurance in Lincoln, said their company only started offering an employer-sponsored long-term care insurance at a discount price through John Hancock last year. Although participation has been extremely low so far, Lebl said they are getting more and more calls from retirees interested in availing themselves of the benefit, which is not payroll- deducted.
Laura Kenerson, director of personnel services at the University of Rhode Island, said that although long-term care is not currently part of their state-negotiated benefits package, it is “an incredibly important benefit for employees.” She said it’s important whether there is an employer contribution or whether the premiums could be taken from a paycheck “on a pre-tax basis.”
