Long-term care

You see your aged father's physical health declining gradually, despite his sharp mind and strong will.

But you don't realize how much he needs help until you discover that he has a sore on his heel because he is spending too much time sleeping in his favorite chair while wearing shoes he can no longer take off by himself.

Many insurers and producers say people are going to have to experience such moments--and their emotional toll--before they decide to buy long-term care insurance for themselves or to offer it to their employees.

Traditionally, long-term care insurance has not been a popular product for employers to offer or for employees to buy, experts say. According to the latest data available, 6,577 U.S. employers sponsored group long-term care programs in 2004 and 1.86 million employees participated in those programs, according to the American Assn. for Long-Term Care Insurance in Westlake, Calif.

Generally, "long-term care still hasn't made it to the 'must-have' list," unless a person or a loved one has had a life event where such coverage could have helped, said Scott Beck, national director of distribution and account management at the Westport, Conn.-based long-term care unit of MetLife Inc.

Long-term care provides a wide range of services and assistance to aged adults who need help in performing basic functions, such as bathing and dressing. The levels of care begin with the less expensive home visits by trained aides or homemakers and include more expensive assisted living facilities or nursing home care.

The price of the insurance coverage is designed to remain fixed at a rate based on the age of the buyer when he or she purchases the product. Subsequent rate increases must be approved by a state insurance regulator.

Sellers, however, are trying to encourage employers to offer the coverage as a voluntary benefit by making it more available, with lenient workplace underwriting, and more affordable, with employer discounts. In addition, the product's age-specific pricing allows younger buyers to pay less for coverage through their lifetime.

12% offer coverage

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. In addition, the coverage is offered more often to white collar workers than to blue collar workers--17% compared with 7%, the bureau reports.

The federal government and some other public entities also offer long-term care insurance through large group programs, said Jesse Slome, executive director of the AALTCI. The association represents primarily agents and brokers that sell such coverage.

About 1.9 million employees participated in 6,500 group programs in 2004, according to the association's latest statistics.

Those so-called "true group" programs are primarily insurer-driven and consider the employer as the policyholder while employees receive certificates, said Dennis Healy, vp-business development for the group long-term care department at Boston-based John Hancock Financial Services Inc.

There are several reasons why long-term care has not been popular, insurers and producers say.

"It's an icky product. No one wants to think about a nursing home or losing function," Mr. Beck said. Compared to health insurance, "it's a hard sell."

Also, there is confusion about what services Medicare or other health insurance will provide, which is typically up to 100 days of nursing home care following a three-day hospital stay, experts say.

In addition, "long-term care always has been considered a senior product," said Mike Skiens, president of Portland, Ore.-based MasterCare Solutions Inc., a brokerage that specializes in long-term care insurance. Yet, the older a buyer is, the more difficulty he or she faces in obtaining the coverage due to health status and paying for it.

For example, a "good" policy for someone who purchases coverage between 60 and 65 years of age can cost $2,000 annually, although that person could have paid $1,200 annually--$800 less--if he purchased it at age 50, Mr. Skiens said.

Long-term care insurers and producers hope that the aging U.S. population will increase interest in the product.

"Statistics show that at least 6.4 million people aged 65 or older need long-term care, with one in two over age 85 requiring care," according to a survey by Westport, Conn.-based MetLife Mature Market Institute.

The annual cost of that care is an important factor, too. In 2006, the national average rate for a private room in a nursing home was $75,190 and the rate for assisted living was $35,616, according to the MetLife survey.

"With the workforce growing older, the reality of the sandwich generation is sinking in," Mr. Skiens said. The compression of generations, in which middle-aged workers are trying to help their parents and children cope with changing needs, "is creating awareness."

Also, demographic shifts are swelling the pool of potential purchasers of such coverage. For those born from 1946 through 1964, "there is a wave of baby boomers looking at their own mortality," Mr. Beck said.

Financial Motivation

From an emotional perspective, long-term care insurance sales are motivated by the realization that if a person can set aside a pool of money for their basic care, they will be more inclined to use it and remain independent. "It's better for them and for their children," Mr. Slome said. "Long-term care allows your loved ones to care about you--not for you--and gives you choice and control over how and where you receive care."

From a financial perspective, such sales are motivated by the realization of the cost of such care and the financial incentives that the product offers, such as the ability to lock in age-specific premiums so younger employees pay less while protecting their retirement savings, experts say.

When long-term care insurance emerged as a product in the 1970s, it provided skilled and intermediate care only in nursing homes, which most people have long considered the last place they want to be.

Since then, insurers have expanded options to allow policyholders to get such care in their own homes or in assisted living facilities.

Of the $3.3 billion in long-term care insurance claims paid in 2006, slightly more than 33% went to home care and nearly 30% to assisted living, according to the long-term care association.

"The benefit levels for home health care have been steadily rising," said John Hancock's Mr. Healy.

"You'll also see more flexibility, because flexibility and lower price is what people want," Mr. Slome said.

Depending on the policy, insurers pay benefits on the basis of indemnity, reimbursement or in cash, with little or no paperwork. Policies may contain a wide variety of coverage options including inflation adjustments, accelerated payment options and the return of unused premium.

huge market

The potential employer market "is huge and there is a lot of opportunity," Mr. Healy said.

"Employers are finally beginning to understand where long-term care fits," broker Mr. Skiens said. "Long-term care functions as a firewall around an employee's retirement plan."

Employer-sponsored group sales resulted in $60 million in annualized new premiums in 2004, according to the long-term care association AALTCI.

Among potential employer customers, sellers first target those with white collar, college-educated employees of sufficient means.

"Long-term care is for people with assets to protect and income to pay for the coverage," Mr. Skiens said. Producers often follow the "50-40-40" rule when assessing the appropriateness of approaching a group about coverage: 50% of the group should be older than 40 and make more than $40,000 a year, although on the more expensive East Coast they may seek a baseline salary of $50,000, he said.

"The most successful worksite program is a multilife program that essentially is a hybrid product," said Ed Jette, vp of ElderCare Insurance Agency Inc. in Oxford, Mass. "It offers the flexibility of individual products with the benefits of a group product, including discounts and relaxed underwriting."

Most employer group plans "are brokerage--or agent-driven with simplified underwriting," Mr. Healy said.

A private employer that decides to offer long-term care insurance to employees typically does so in one of three ways, experts say. The most common plan is a voluntary one in which the employer pays nothing.

"Traditionally, voluntary programs have been the most common, but we are increasingly seeing employers making a financial commitment" to employees premiums, Mr. Skiens said.

Another option is the "core buy-up plan," in which the employer offers core benefits but employees are permitted to enhance those by buying broader coverage.

Finally, some employers offer an "executive carveout" program, which employers often sponsor for top company executives and their spouses who receive coverage as a free benefit.

Employees' litany of reasons for not buying the coverage include "I'm too young, poor--or rich--and I'll never use it," Mr. Jette said.

The real reason employer-sponsored voluntary coverage has not had greater worksite penetration is that most insurers and producers "don't allocate enough man-hours and resources to educate, sell and enroll applicants," he said.

Mr. Healy said underwriting criteria for long-term care insurance typically follows the standard industry practice of: "The smaller the size, the more stringent the underwriting criteria."

Underwriting for a long-term care policy purchased by an individual typically requires the applicant to fill out a lengthy questionnaire and give an insurer access to all his medical records, experts say. In addition, some insurers may reserve the right to do a phone or face-to-face interview, especially if the applicant is older than 70, Mr. Skiens said.

Underwriting is less invasive if purchased through an employer's group program, Mr. Skiens said. For example, underwriting for employees may be done on a "guarantee issue" basis, with a few exemptions for pre-existing conditions, or through "simplified underwriting," which consists of answering about five health-related questions.

There is, however, a onetime window ranging from 30 to 90 days for employees to participate in the coverage as members of a group, producers say.

Although employer plans vary, typical features include a discount as well as age-specific pricing that is cheaper for younger workers and more expensive for older workers.

Frank J. Fimmano, a New York-based senior vp for Aon Consulting's elective benefits practice, cited a recent example in which three insurers quoted costs for a 1,000-employee company. For basic coverage that would provide $200 per day in nursing home costs, premiums 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.

Many employers do not contribute financially to group long-term care coverage offered to their employees, although their interest in the program is important. "There is a definite correlation between employer endorsement and employee interest," even if the employer is not contributing any money to the program, MetLife's Mr. Beck said.

The market trend in product offerings is toward simplification, Mr. Beck said. "There is a demand for a simpler and more affordable product."

In addition to employer group sales, long-term care insurance is sold through association programs, which resulted in $25 million in annualized new premiums in 2004, according to the AALTCI's latest statistics.