Long-term care insurance is becoming an increasingly popular benefit at the worksite. Whether a company includes it as a voluntary option, purchases a base plan for everyone, or has an executive program, LTCI will continue to be a popular choice. This does not guarantee it is an easy sale, however.
Purchasing a quality LTCI policy, whether individually or at a worksite, is probably the second most expensive benefit cost for an employer after medical coverage. Of course, with the average annual rate for a private nursing home room being $76,460 and cost for in-home care on the rise, it's no wonder that the premiums are appropriately high, offset only by the compared cost of not planning.
Because LTCI is perceived as expensive, and a benefit that may not be used for many years, employees with policies are understandably concerned about whether the policies will deliver on their promises when the time comes to use it. Although the vast majority of Long-term care insurance carriers have performed admirably, there have been a couple of underperforming companies that has led to government oversight.
LTCI under review
LTCI became the focus of a House Energy and Commerce Subcommittee on July 24, 2008. The committee meeting investigated a number of areas, including premium pricing and claim practices. One memorable moment featured the son of a policyholder who described the personal difficulties his family had in getting his mother's claims paid. They were put on hold for many hours with the carrier and couldn't get help from the State Department of Insurance. One of the most frustrating parts of this testimony was the disclosure the agent was unable to be more helpful to the family when they needed it.
Unfortunately, this hearing was almost immediately prior to the onset of the subprime mortgage crisis and subsequent federal bailout of large insurers and banks. This may mean there will be less focus on carriers and industry assurances of best practices for a while. Even so, it's also important to note that many of the practices that are under the most scrutiny are no longer occurring with the frequency they occurred in the past. Some examples of how those sales and carrier practices have changed fall in line with discussing the effects of the Health Insurance Portability and Accountability Act of 1996.
HIPAA brings needed change
Pre-HIPPA was a time when there were a multitude of carriers and a broad range of claims; claim forms were needed to process claims and benefit triggers such as medical necessity lead to claim denial or delay. Today, with HIPAA in place, LTCI is no longer seen as a stand-alone product sale and is now part of a complete retirement plan. There are fewer carriers and narrower premium ranges, easier ways to process claims with 800-numbers, and the availability of simpler products that offer comprehensive care in a variety of settings.
Additionally, pre-HIPAA, the average target was considered senior level with an average purchase age of 69, where the discussion was focused around avoiding the nursing home. Currently, post-HIPAA, the average target is baby boomers with an average purchase age of 59, and the discussion is focused on how long-term care will affect the family as well as retirement plans.
Keeping in mind the history experienced by leading carriers and advisors, the next step for everyone is concerned is to move forward and look closely at how the issues are being addressed today.
Explaining LTCI status today
It's a reality that you may counter some objections and concerns when working with companies or employees deciding to add LTCI to their benefit package. Here are a few concerns you may encounter and the truth behind them:
- The plans are confusing. It is true that in the past many policies were confusing. In addition to more carriers to choose from, there were policies that were nursing home only or home health care only. The benefits for home health care and assisted living facilities may have been a percentage of the nursing home benefit. Several riders were additional add-ons.
However, today, the leading carriers have simplified their offerings. Almost every carrier utilizes a comprehensive approach with a single pool of money that can be used to provide the care of choice whether it is home care, assisted living facilities, or skilled nursing facilities. - Are products priced appropriately? Some of the early LTCI assumptions were incorrect due to two major factors -- predicting the lapse rate would be higher (actually, people who have invested in LTCI policies feel secure and are loath to give that sense of security up) and interest rate assumptions. At this time, the current pricing assumptions of products should be better.
Many states use the NAIC premium stability regulations. However, given the current turmoil in the investment world, it is prudent for advisors to fully disclose these risks. One approach might be to discuss a 1 percent increase in premiums per year for products sold today -- explaining that someone who purchases a plan at age 60 might see a 15 percent increase at age 75, and yet another 15 percent at age 90. However, admitting that you just don't know what all the future adjustments will be in the face of uncertainty can be refreshing, as well. Just remember, both group and individual LTC contracts are fully portable. - The carrier will go out of business and not be able to pay claims. Again, as we have seen it is prudent to expect the unexpected -- in fact, we have seen one of the largest insurers being taken over by the federal government. The only assurance that can be given is that the largest, most experienced carriers have the proper reserves to fulfill their promises. That is why it is critical to work with companies who practice transparency and explain their reserve practices.
- Claims will be denied, delayed or otherwise avoided. This is the promise that companies make -- to be there for the policyholders AND their families at the time of need. There has been real progress in making the claim process easier and more transparent. One prominent carrier, for example, has a listed five-step process that begins with a toll-free telephone call. No claim forms are required; an external care coordinator contacts the policyholder within 48 hours to schedule an on-site assessment and assist with necessary forms. This same company includes consumer protection features such as a payment of an interest penalty for non-timely payment of claims and the use of a third party review process in the case of a claims denial.
A responsibility to care
It is no secret that mistakes have been made in this young industry. However, the message to your companies considering LTCI should be that long-term care is not just an issue for individuals, or for insurers, or for the government. It is an issue that affects all Americans. When it comes to employee care, this is one product that says very loudly a company cares. And the reality is LTCI is here to stay and will become increasingly more in demand as employers face an aging workforce. It is everyone's responsibility to make it the best product for the people, and their families, when and where they need it most.
