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The Mixed Message of Long-term-care Coverage

April 30, 2004
Related Topics: Health and Wellness, Featured Article, Compensation

G ary Grey didn’t need to hear a long-winded pitch from a smooth-talking insurance salesman to decide that he should purchase a long-term-care policy. Witnessing his elderly mother’s medical plight was convincing enough for the former aerospace engineer from Granada Hills, California.

    In June 1998, a complicated hip-replacement procedure left Grey’s mother, Sarah, incapable of walking without aid and in desperate need of round-the-clock care. Fortunately, Sarah had the foresight to purchase a long-term-care policy 10 years earlier, at the age of 77. The insurance paid $120 a day for a live-in nurse for more than three years, until Sarah’s death, an expense totaling more than $150,000. "It was a godsend," says Grey, who purchased his own long-term-care insurance as well as a policy for his wife soon after his mother’s death.

    Grey is just one of a growing number of Americans who are beginning to confront the problems and costs of aging, and buying or considering LTCI. And corporate America is starting to listen. A recent report by the American Council of Life Insurers says that more than a third of companies with 5,000 or more employees now offer LTCI, as do a quarter of midsize firms and at least 22 state governments. It doesn’t cost businesses anything to offer LTCI to their employees. Yet employees who sign up for a policy may eventually save businesses a lot of money in lost productivity. Statistics show that one in four employees cares for an elderly family member. The resulting lost productivity and turnover cost businesses $29 billion a year, MetLife reports.

    FedEx didn’t encounter any difficulties convincing its employees of the benefits of LTCI. The transport behemoth began offering the insurance in May 2001 through MetLife. To encourage employees to sign up, FedEx mailed out brochures and had customer-service representatives available to field questions. Today, 7,800 FedEx employees are enrolled and enjoy 10-year rate guarantees and expanded family coverage that includes spouses, parents, in-laws and children.

    But FedEx’s decision to introduce its employees to LTCI wasn’t entirely altruistic. As the company’s workforce began graying, the difficulty of "having to care for aging parents was becoming an issue with many employees," says Gus Lauer, FedEx’s managing director of health-care services. By enabling workers to sign up for LTCI, Lauer says, FedEx hopes to maintain business productivity, reduce absenteeism and eliminate workplace stress as an increasing number of employees begin to care for their elderly parents.

    "There is a productivity issue facing America, and it’s going to continue to get worse [as more and more employees] have to provide for their parents," Lauer says. Despite the pressing need for Americans to protect their parents, and businesses their bottom lines, companies have found that some employees simply aren’t ready to deal with the prospect of long-term care. While a recent survey by the U.S. Chamber of Commerce found that 56 percent of all workers are concerned about the need for this coverage, insurers have sold only about 8 million LTCI policies nationwide. The hefty price tag is a significant factor in the slow adoption rate.

"The reason people don't buy long-term-care insurance is denial, absolutely denial."

    While it’s possible to purchase LTCI independently, there are benefits to group plans. Unlike individual policies, group plans rarely ask employees to provide "evidence of insurability." Instead, applicants are practically guaranteed coverage. It’s a precious perk, given that rejection rates for LTCI policies can run as high as 30 percent, depending on an applicant’s age, habits and medical history.

    In the American Health Care Association’s most recent report, 43 percent of people over age 65 are shown to be at risk of entering a nursing home sometime in their lives. And the average daily rate for nursing-home care is $168 for a private room and $143 for a semi-private room, according to a 2001 MetLife market survey. Aging Americans can’t bank on Medicare for help. While it will often cover short-term nursing care after a hospital stay, Medicare doesn’t cover personal care or prolonged home care. LTCI can offset these costs by reimbursing policyholders for all or some of the expenses associated with professional care, including services provided by nursing homes, assisted-living and adult-day-care facilities, and home-health agencies.

    The coverage doesn’t come cheap. A single policy for a healthy 50-year-old employee can cost anywhere from $1,500 to $3,500 a year. A 70-year-old wishing to purchase a policy can expect to pay as much as $10,000 a year. For this reason, experts recommend that people buy the policy when they are in their mid-40s to mid-50s. Gary Grey and his wife, for example, purchased their policies at age 60 and 56, respectively, and pay a combined total of $7,000 a year. It’s a high price to pay for protecting one’s assets, but that hasn’t stopped employees from asking companies to make LTCI available in the workplace.

    With 76 million baby boomers about to become senior citizens, employees are insisting that employers offer easy access to LTCI policies through carriers such as Prudential, John Hancock and MetLife. Selecting an appropriate carrier and comparing policies can be a "daunting undertaking" for an individual consumer, says Paula Wickland, a principal at the employee-benefits firm Towers Perrin. Fortunately, Wickland says, employers can simplify the process of selecting a carrier by conducting the necessary legwork on behalf of employees. Businesses often are better equipped to negotiate policy features such as premium prices, inflation protection and extended coverage. This is especially important in the case of multi-year rate guarantees. The cost of a nursing facility increases about 5 percent each year. A company can ensure that an LTCI policy properly addresses these rate increases.

    "You simply don’t have the leverage and the negotiating power of an employer when you’re out there on your own in the individual market," Wickland says.

Fear of aging also comes into play.
"The reason people don’t buy long-term-care insurance is denial, absolutely denial," says Sandra Pierce-Miller, project director at the California Partnership for Long-Term Care, a division of California’s Department of Health Services.

    David Ness knows how hard the sell can be. Ness is vice president of compensation and benefits at Medtronic, a medical technology provider in Minneapolis, which began offering LTCI in the fall of 2000 through Prudential. To date, 615 employees have signed up for a policy, a meager 2 to 3 percent of Medtronic’s total eligible population. It’s a negligible number, but one that Ness says is currently the industry norm. High premiums are a disincentive. Then there is simply the lack of education surrounding LTCI. Many workers are unaware of LTCI policies, the high price of home care, and how insurance can ease the financial burden of caring for ailing loved ones.

    Kathy Udavchak, an operations manager at Kodak in Rochester, New York, who is in her 40s, says that before the company began offering LTCI in early 1993, the words "long-term-care insurance" had never crossed her lips. "If Kodak weren’t offering it, I wouldn’t have long-term-care insurance right now," says Udavchak, who purchased a policy two years ago after attending LTCI information sessions hosted by Kodak and prospective carriers. Kodak automatically debits her annual premium payment of $948 from payroll, an added convenience for those who purchase their policies at their place of employment.

    There’s no simple answer as to whether it’s up to companies to better educate an aging workforce on LTCI or it’s incumbent on workers to demand group-plan policies from corporate America. What is certain is that employees cannot simply depend on Medicare’s generosity or wait for cheaper premium prices or the perfect policy before making a move on LTCI.

    Gary Grey is one who believes that the investment is well worth the risk. "Long-term-care insurance is like any other insurance. You’ve got to lose to win," he says. "It’s unfortunate, but it’s a fact of life."

Workforce Management, May 2004, pp. 63-65 -- Subscribe Now!

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