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What is the status of long-term care plans today? How popular are these plans and how does the Health Insurance Portability and Accountability Act of 1996 impact these plans?
According to a Health Insurance Assn. of America survey, 1,260 group long-term care programs were in force in 1995. The growth in group long-term care plans has been sporadic from year to year. They experienced fairly substantial growth in the early 1990s; that growth slowed in 1993-1994 but increased substantially in 1995. However, the vast majority of long-term care policies have been issued on an individual rather than group basis. According to the HIAA, more than 80% of the policies have been issued through the individual market.
A William M. Mercer Inc. survey published in March provides some insight into the long-term care plans employers offer. One element of the Mercer survey focuses on the participation rates. The survey included 66 respondents that offered group long-term care plans; 94% of those respondents employ more than 1,000 people. Forty-nine percent of the respondents indicated that the participation rate of employees was less than 5%. Twenty-three percent of employers reported participation rates between 5% and 9%. This indicates that while the number of employers offering long-term care coverage may be increasing, the overall participation rate is relatively low.
The Health Insurance Portability and Accountability Act established favorable tax treatment for long-term care insurance, similar to that currently granted to accident and health insurance premiums.
Employer-paid premiums now are fully excludable from employee income. Employee-paid premiums-up to certain limits-now are treated as unreimbursed medical expenses; that is, potentially deductible from income along with other unreimbursed medical expenses. However, employee-paid premiums are deductible only up to an age-rated dollar amount and only if the premiums along with the unreimbursed medical expenses exceed 7.5% of the individual's adjusted gross income. Also, employee-paid unreimbursed long-term care expenses will be treated as unreimbursed medical expenses potentially deductible from income, again subject to the 7.5% of adjusted gross income rule.
Also, long-term care payments of more than $175 a day or an annual maximum of $63,875 are not tax-exempt unless the insured has incurred actual costs for long-term care services that match the excess. For taxable years after 1997, the per diem and annual dollar limits are indexed for increases in the medical care component of the Consumer Price Index. Also, expenses for long-term care services cannot be reimbursed under a flexible spending account plan. The benefits an employer pays under a long-term care plan contract will not be tax-exempt to an employee if they are provided through a flexible benefits plan.
The new law certainly improves the situation for those buying long-term care insurance as well as for employers that may want to offer long-term care as an employer-provided benefit. I think the government may be sending a message with this law that it has no intention of expanding Medicare benefits to provide any additional long-term care. The message is that the responsibility for long-term care is with the individual. With that thought in mind, employees should think about buying long-term care insurance.
As indicated, the participation rates in long-term care insurance programs have been nominal. Part of the reason for relatively low participation is the lack of knowledge of long-term care and the perceived low probability of the potential of one needing long-term care services.
John Hancock Mutual Life Insurance Co. and the National Council on Aging conducted a survey that focused on the knowledge level about long-term care and the potential for long-term care. The results were that individuals overall do not understand long-term care and the fairly high probability that they will use it. Some of the statistics shared from this survey, which certainly would be of interest to employees, include:
Between 45% and 60% of people now receiving long-term care services are between age 18 and 64.
There is a 45% to 60% probability that someone age 65 eventually will be admitted to a nursing home.
On average, a one-year stay in a nursing home today costs about $40,000.
People have to spend almost all of their assets to be eligible for Medicaid benefits.
Medicare pays a nominal portion of the cost related to an extended stay in a nursing home. More than 60% of older adults receiving long-term care receive that care in their homes.
An improved understanding of the need for long-term care is important for employees.
The John Hancock/NOCA survey proved employees do not understand long-term care.
The William M. Mercer survey, "State-of-the-Art in Long-Term Care Insurance," shed some light on the types of plans offered to employees today. Some of the key findings of that survey:
Eligibility. More than 90% of those surveyed indicated that those eligible for this coverage include employees and spouses, employees' parents and in-laws. Seventy-three percent of the respondents provide long-term care insurance to their retirees and retiree spouses, while 23% of respondents say employees' grandparents and grandparents-in-law are eligible for coverage.
What is covered? More than 90% of the plans indicated they cover nursing home; home health care, or skilled care; and adult day care, while 74% of the respondents indicated they covered home personal care, or unskilled care, and respite care. Other types of care cited by 5% or less of the survey respondents include hospice care, physical/occupational/ respiratory/speech therapy and alternative care facilities.
How much is covered? The most common number of choices of daily maximum benefits is three, offered by 44% of respondents, while 18% provide four choices, 14% provide five to six choices, and 13% provide six or more choices. The dollar amount of coverage varies considerably, including the range of nursing home daily benefits and the total lifetime maximum benefits.
Those employers responding to the Mercer survey provided the reasons they offered long-term care benefits.
The most common reason is that the employers wanted to offer leading-edge benefits. Seventy percent of the employers felt that was extremely important or very important. The second most common reason is that the benefit could be offered at low employer cost. Other reasons cited in the survey included that it was a good fit for the workforce, employees/retirees wanted it, senior management wanted it, it helped achieve a human resources objective and, finally, competitors offered the benefits.
It is also interesting to view the ways in which the long-term care benefit was positioned within the total benefits package. The benefit was split evenly between providing the long-term care benefit as part of a flex program and as part of a work/life program. Others positioned the benefit as part of disability, health or retirement.
Finally, there is generally positive employer reaction to long-term care programs, with 70% of the respondents indicating they were satisfied with the program, while 17% indicated it was too early to tell and 13% indicated they were not satisfied with the long-term care program.
It will be interesting to view the marketplace to determine if the 1996 law influences more employers to offer long-term care plans and if employers begin to pay some portion of the cost of long-term care programs. The Mercer survey shows that only one employer subsidized the long-term care benefit-the employer pays 20% of the cost.
As the population ages, we will see increased interest in long-term care coverage, though because of the nature of the coverage, it likely will never be as commonplace as life or disability coverage. Although employers can offer long-term care coverage and not have the employee taxed on such coverage, I don't expect to see many employers offer this coverage and pay for it. Organizations today are looking to control their benefit costs, not increase them. However, a long-term care plan can enhance an employer's benefit program.
According to the Mercer survey, the two most common ways to position this benefit were to offer it as another option under their flex plans or to offer it as part of a work/life program. We probably won't know until after 1997 and 1998 if the new law influences the number of long-term care plans being offered. I think better understanding of long-term care issues and the aging workforce probably will have a greater influence on the interest in long-term care plans than the legislation.
Material in this article does not constitute accounting, tax, investment, legal or business advice. Employers should review their specific situation with professional advisers.
Would you like advice from an experienced colleague on a risk management, benefits management or actuarial problem? Four quarterly features in the Perspective section of Business Insurance can give you some answers.
Ask A Benefit Manager, Ask A Risk Manager, Ask A Benefit Actuary and Ask A Casualty Actuary answer written questions from readers on risk and benefits management issues and actuarial problems.
This month's column on employee benefit management issues was written by Dennis J. Nirtaut, managing director of compensation and benefits for Andersen Worldwide S.C. in Chicago. Christopher E. Mandel, director of risk management at PepsiCo Restaurant Services Group in Louisville, Ky., answers questions on risk management issues. William J. Miner, an actuary with Watson Wyatt Worldwide in Chicago, answers actuarial questions on benefits issues. And, Richard E. Sherman, president of Richard E. Sherman & Associates Inc. in Ashland, Ore., answers actuarial questions in the casualty field.
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