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Price stands in way of participation in long-term care plans

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If saving money for retirement is on the back burner for many U.S. residents, planning for long-term care expenses hasn't even made it to the stovetop. Experts say few employers offer long-term care insurance and, when they do, few employees sign up for the costly benefit that employers rarely subsidize.

Dennis Healy, vp of new business development for the long-term care division of John Hancock Financial Services Inc., calls the market "virtually untapped."

"It's perceived as an expensive product," said Mr. Healy. "If people aren't saving for retirement, they are not going to sign up for this."

Long-term care is the spectrum of services and assistance provided for aging adults who need help performing their daily functions. Levels of care range from more affordable home visits by trained caregivers to dramatically more expensive nursing home stays.

With an average nursing home costing $75,190 a year, according to a 2006 study by the Westport, Conn.-based MetLife Mature Market Institute, and an increasing "sandwich generation" burdened with caring for their aging parents, it's becoming more apparent that people need to plan for the possibility of long-term care, experts say.

According to the Washington-based American Council of Life Insurers, 55% of people 85 and older require some form of long-term care and 19% of all seniors suffer from some chronic impairment. By 2050, ACLI estimates up to 5.4 million seniors will require nursing home care and another 2.4 million will need home health care.

But few workers are rushing to sign up for long-term care coverage and companies are just starting to catch on to the offering.

"Long-term care and that message and the urgency just hasn't hit home," said Frank Fimmano, a New York-based senior vp for Aon Consulting who works in the elective benefits practice. "Not many understand that the government is not going to pay for your nursing home."

Long-term care insurance emerged in the 1970s as a simple plan to eventually help individuals pay for ever more costly nursing home stays. Since then, the coverage has evolved. Insurers began offering group plans in the 1980s. Today, policies provide a myriad of options, including those that pay for all levels of care--from a nursing home stay to regular home visits from a licensed caretaker--and those that factor in inflation when plans eventually are tapped to pay expenses.

Gradually, experts say, interest in long-term care insurance is increasing, but not to the level that is necessary.

According to the U.S. Bureau of Labor Statistics, 12% of private companies offered long-term care insurance to employees in 2006, up from 11% in 2005.

"Long-term care over the last five to six years has become a popular request among our corporate clients," said Rich Reda, a Kansas City, Mo.-based producer at Lockton Insurance and Risk Management Specialists. "People are starting to get more educated that there is not much there in the government to cover long-term care."

White-collar workers are more likely than blue collar workers to be offered long-term care insurance--17% vs. 7%, respectively, the Bureau of Labor Statistics reported.

However, even when companies offer the benefit, most are voluntary payroll-deduction programs with low participation rates. While figures vary, most experts say employee participation in employer-sponsored long-term care insurance programs tends to be in the 5% to 8% range. Even companies that extend the benefit to an employee's family members--including aging parents who may need the care sooner rather than later--see low participation rates, Mr. Fimmano said.

Company-paid long-term care insurance is seldom offered except to top-level executives as part of their compensation packages, experts said.

Although premiums vary according to age and policy specifics, Aon's Mr. Fimmano cited a recent example of a 1,000-employee company that was seeking long-term care coverage, under which group plan premiums are based on age and expenses per day.

For a policy that would provide $200 per day for nursing home costs, premiums from three insurers ranged from $28 to $36 per month for a 40-year-old employee, and from $95 to $113 per month for a 60-year-old employee.

Although other brokers said $200 a day often is the starting point for most policies, Mr. Fimmano that could be too little given today's costs. The average nursing home now charges $206 a day for a private room with some locales charging twice that, according to the MetLife study.

Plans that would provide coverage of more than $200 per day cost significantly more, and also do not include inflation--an option purchasers may want to consider, Mr. Fimmano said.

Premiums for plans that consider inflation--such as one that increases the $200 a day benefit automatically by 5% annually--range between $100 and $295 a month, depending on age and policy conditions.

Long-term care is not always an affordable option for many blue collar, rank and file employees, said Randall Abbott, a Wellesley Hills, Mass.-based senior consultant with Watson Wyatt Worldwide. "Long-term care is competing with a scarce payroll deduction dollar. People are already contributing to their health care, their (retirement) savings plan, their life insurance."

Mr. Abbott said lack of employee awareness often contributes to low participation rates. "If there is a program available it is probably dormant and employers haven't promoted it," he said.

Other issues, such as younger workforces, also affect participation in long-term care insurance offered by employers.

Such is the case at Fannie Mae, the federal mortgage lender with 5,700 employees. According to a spokeswoman, Fannie Mae has offered voluntary long-term care insurance for years, but just 5% of its employees participate.

"We think that part of the reason (for low participation) is the average age of our workers is 40, and we don't think the younger workers are thinking about long-term care insurance," the Fannie Mae spokeswoman said.

Meanwhile, companies with an older workforce tend to offer coverage at higher premiums--leading back to the No. 1 reason for low participation among companies offering coverage: too expensive, Mr. Abbott said.

"Typically people don't recognize the need for long-term care insurance until they are in their mid-40s," he said. "Because (premiums are) age-based, the premium costs at those ages are higher. When folks do realize there is a concern, they find the rates high and they look at what they are already contributing to their health care, their 401(k)" plans and "they find that they just can't afford (long-term care insurance)."