Offer Long-term Care Insurance Uncle Sam No Longer Has His Hand Out

July 1, 1997
When her Aunt May had a paralyzing stroke in the 1970s and could no longer speak, Betty du Fossé had to arrange for the care of her mother's sister. Du Fossé couldn't afford to give up her full-time secretarial job, so she assessed Aunt May's coverage and began paying attendants to care for May at home. When she ran out of funds from Aunt May's savings and teacher's pension, du Fossé sold May's home and put her in an apartment with full-time care. When that money was nearly gone, du Fossé calculated that May almost qualified for Medicaid, but her teaching pension contributed about $60 too much per month to fit the guidelines. So du Fossé persuaded the pension board to reduce Aunt May's benefits by $60 a month so she could qualify for care. Aunt May lived for fifteen years after the stroke, most of them in a nursing home on Medicaid.

Today, du Fossé is retired and living in northern New Jersey. But if the recently enacted Health Insurance Portability and Accountability Act of 1996 (HIPAA) had been in place when du Fossé's Aunt May had suffered her stroke, du Fossé might today be working in her retirement years to make up for her financial ruin. Even worse, she could be sitting in a jail cell. That's because with the act, the government has imposed a penalty of fines, jail time or both for transferring assets as du Fossé did to qualify her aunt for Medicaid.

Until January 1, 1997, when the law became effective, a person could reduce assets by transferring them to someone else within the three years preceding applying for Medicaid (Medi-Cal in California) and still qualify for government support of long-term care. Now it's a federal crime to make such a gift within three years of applying for Medicaid, or within five years for a living trust. Many of the maneuvers that lawyers have used for years to help clients protect assets and comply with Medicaid rules are now illegal with this law.

Embedded in this new law is a clear message to people who expect that the state will fund their or their family members' long-term care. The message, according to Cheryl McNamara, vice president of product development for insurance provider CNA in Chicago, is that "government isn't going to pay for this. The new tax legislation [instituted with the HIPAA] encourages people to consider long-term care coverage. The carrot is tax clarification. The stick is that transferring assets to qualify for Medicaid is now a criminal offense."

The good news is that provisions of the law now make it easier and cheaper for employers to offer long-term care insurance to employees as part of the benefits package—stepping in to plan for where the government is stepping out. The bad news is that this means long-term care insurance is no longer something employers can ignore. As more and more working Americans recognize their need for such coverage, companies will need to assess whether they need to oblige.

Why people need long-term care insurance.
The need for long-term care touches more people today than ever before for many reasons. For one, the family structure has changed. Tom Leach, the senior member of Ford Financial Group in Ridgewood, New Jersey, has provided insurance and financial planning services to clients for 40 years. He recalls that when he began, "it was customary for young people to bring parents who needed care into the home. Then children moved away, people began working more than full time, and they couldn't take care of parents in the home any more."

As more people began paying for long-term care, Leach says, "People began using up their entire estates to cover the costs of care. Then the lawyers figured out ways to create artificial impoverishments. Now we're trying to provide for the care we may need through an insurance product. We're all on new ground here."

Another reason more people have caregiving responsibilities than ever before is because life expectancy has increased. People are surviving illnesses that would've been terminal 20 or 30 years ago. Medical technology has outpaced our society's ability to fund what it makes possible. McNamara points out that we as a society have a new sense of healthy aging. We no longer consider senility normal; we treat it.

Combine that with the fact that the subgroup of people over age 85 is the fastest-growing segment of the population, according to the Washington, D.C.-based Health Insurance Association of America (HIAA). As the population ages, the odds increase that people will need nursing home or other long-term care at some point. And women face a 50 percent greater chance than men of needing long-term care after age 65 because women tend to live longer.

But, long-term care isn't just for the aging. Surprisingly, 40 percent of people who receive long-term care are between the ages of 18 and 64, according to an April 1995 report from the federal General Accounting Office. And the HIAA reports that "a 1995 Harvard/Louis Harris survey found that one in five Americans over age 50 is at risk of needing long-term care services during the next 12 months."

Despite these numbers, the Washington, D.C.-based National Council on the Aging (NCOA) and Boston-based John Hancock Mutual Life Insurance Co., which surveyed 1,000 random adults about long-term care in a study reported in February 1997, found that 48 percent of respondents had done little or no long-term care planning. This is due in part to the fact that up until now it has been prohibitive for employers to offer long-term care insurance to employees because of the cost of premiums. But, even in those companies that offered such insurance, most people didn't see a need for it. According to the NCOA/John Hancock survey, 73 percent of respondents think that Medicare is the primary funding source for most older people's long-term care costs. But, HIAA literature states flatly, "Generally, neither Medicare, private Medicare supplemental insurance nor the health insurance you may have either on your own or through your employer will pay for long-term care." And of course, with the new law, Medicare may not even be an option anymore. So the burden of cost shifts to families.

What long-term care costs.
So how much money are we talking about here? Ned Pellman, health insurance product manager for American Express Financial Advisors in Minneapolis, points out that although most literature on long-term care quotes an average nursing home cost of $40,000 per year, costs vary by region. On the West Coast or in the mid-Atlantic states, $60,000 to $80,000 isn't unusual, and in Hawaii the comparable rate would be close to $100,000 a year.

Pellman speaks from personal experience when he talks about family responsibility for the costs of long-term care. "The person this is toughest on is not the person needing long-term care. It's the family member who has to find a way to pay for it. People say, 'Well, I'll take my chances. The average stay in a nursing home is three years, so I'll set aside some money.' But my grandmother had a stroke at a young age, spent 12 years in a nursing home and went through all the family assets."

My grandmother had a stroke at a young age, spent 12 years in a nursing home and went through the family assets.

Kathryn, "Katie," Nack can relate. She and her husband, both in their early seventies, have recently retired. They don't have long-term care insurance. "When we were the right age to consider it, it wasn't even talked about as a need. Now our son, who's 38, is the right age to consider it no matter what the cost, because his father, my husband, has Alzheimer's." Nack, an architect, retired as Mayor of Pasadena, California, after more than 16 years as an elected official. She lobbies elected officials in Sacramento and Washington, D.C. on behalf of families facing Alzheimer's disease and is making choices in her own life that reflect the stark prospect of shouldering the burden of long-term care costs. She has put the family's house on the market. "My husband and I are moderate-income people. The cost of the long-term care we know is coming for him is around $45,000 a year. That's completely beyond Social Security or my modest annuity that's a rollover from an insurance plan. All of the money from those two sources won't meet the monthly cost of care." Nack is blunt in her assessment. "Preparation for what you know is coming has to start now. I tell you because this is typical. I attend a caregivers' group, and every one of the people there has had to do something extraordinary that he or she wouldn't have done if Alzheimer's or Parkinson's with dementia hadn't affected his or her family."

Yet, when Workforce asked caregivers such as those above the question: "Do you have long-term care insurance after what you've been through?" the responses were surprising. One replied, "I'm sure if I got sick, my employer would take care of it." Another responded that her long-term care insurance is her daughters. A third replied that the premiums were so high, it made just as much sense to save the money for a possible nursing home stay. Mike Reinemer, director of communications for the NCOA reports that people often overestimate the premiums and underestimate the benefits of long-term care insurance. With employers having to step in as partners-in-planning for working Americans' long-term care needs, it makes sense that they clarify the costs and the benefits in light of the new law. But first, employers need to recognize the benefits of being the partner.

Why business should partner with families.
Offering long-term care insurance makes good business sense. Employers need to recognize that even if the person entering a nursing home isn't a current employee, such a person's family members and caregivers are current employees, and they're feeling the impact. In the NCOA/John Hancock survey, 41 percent of those providing care or financial support reported that caregiving had a significant impact on their work, including 18 percent who said it had a very significant impact.

And, in a first-ever study of long-distance caregivers, the NCOA and The Pew Charitable Trusts, based in Pittsburgh, discovered serious productivity losses among workers who manage or provide care for someone aged 55 or older who lives at least one hour away. The study revealed that "those respondents who were the primary caregivers for the older person spent an average of 35 hours per month giving care, roughly the equivalent of one week of work each month." Nearly half of the respondents were baby boomers, and more than half acknowledged that caregiving interfered with their professional duties. As boomers and their parents age, this silent productivity drain will increase in the absence of adequate planning and protection.

It comes down to competitiveness. Not only does providing the insurance protect a company somewhat against loss of productivity from workers who must now provide care themselves, it also becomes a recruiting and retention tool. To be sure, an increasing number of working Americans are recognizing—or soon will recognize—the need for long-term care insurance. The NCOA/John Hancock survey, for example, points out that 77 percent of respondents whose employers didn't offer long-term care insurance said they would like them to offer it, and 82 percent of these employees said they would be interested in acquiring long-term care insurance if it were offered.

Although the roster of employers that do offer long-term care insurance to employees previously has included mostly large organizations-Merck, United Air Lines, Johnson & Johnson, Kraft General Foods and Stanford University to name a few-even smaller companies with 50 to 2,000 employees are beginning to respond to employee demand and provide long-term care plans. According to a September 18, 1996, Los Angeles Times article, more than 1,000 companies nationwide provide this benefit now, compared with fewer than 100 in 1990.

The new law makes it more practical to do so. Provisions of the HIPAA make the administrative costs for the plans tax-deductible for the employer, and premiums are treated like medical insurance premiums. And, offered as a payroll-deduction plan, long-term care insurance isn't complex to manage. (Long-term care insurance can't be part of a cafeteria plan for pretax dollars.) Also, if the plan is federally qualified, the benefits are tax-free for the employee.

In addition, the average cost of private long-term care insurance in the United States has dropped over the past few years, in part because the federal government had sent a strong signal to consumers while debating this legislation, according to HIAA President Bill Gradison. In 1995, the average cost of private long-term care insurance in the United States, as reported by the top-11 sellers, dropped 5 percent compared to premiums reported by the top-1994 sellers, according to an HIAA study (see "What Long-term Care Insurance Has To Offer," page 87, for some specific pricing). Additionally, in 1995, 517,000 new policies were sold—more than any other year since record keeping began in 1987. Employers accounted for nearly 20 percent of overall sales.

City National Bank of Florida, a community bank in Miami, has joined those employers. Benefits Specialist Joanne Morris explains that a 1996 survey of the company's nearly 400 employees revealed interest in long-term care insurance as an employee benefit. "We were looking to enhance our benefits package, and this was something our employees were concerned about. We expected participation in the plan because we knew it was something our employees wanted." In a series of meetings for all employees in December, Morris described all aspects of the new benefits menu, including long-term care insurance. Employees were able to meet individually with the CNA representative in the human resources offices. Twenty-eight percent of the employees signed up.

With continual communications to employees from Corporate America about the benefits of having this insurance, enrollment rates across the nation will surely climb. As McNamara explains, "The enrollment process is relatively simple. And even for short-term claims, the benefits are valuable. This gives employers a chance to send a positive message to employees about rounding out their insurance needs while explaining that the health-insurance policy doesn't cover long-term care."

Here are some suggestions to HR professionals from insurance providers on what and how to communicate:

  • Include information on long-term care insurance in company internal newsletters.
  • Sponsor seminars in which groups of providers explain their programs to interested employees.
  • Distribute the quiz, left.
  • Find a group long-term care insurance plan you can offer as an optional benefit.
  • At the annual open enrollment workshop, explain why the new law has increased employees' responsibility for long-term care.

As the burden to pay for long-term care shifts from the government to individuals, long-term care insurance is emerging as a critically important tool for workers to preserve what they've been able to accumulate and to avoid ending up as a ward of the state—or in court arguing about the distribution of funds. Alerting employees to this new gap in their insurance coverage can help employers maintain productivity and prevent financial disaster in employees' families. This may be HR's best opportunity in a decade to be a hero to employees.

Workforce, July 1997, Vol. 76, No. 7, pp. 84-88.