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LTC cover may be ripe for self-funding

The following is an excerpt from an article which appeared in the September 22, 1997 edition of Business Insurance:

LTC cover may be ripe for self-funding

By Michael Bradford

ATLANTA—Employers can save a bundle and offer workers a nice benefit by self-funding long-term care benefits, according to the head of a management company that designs such plans. 

At a time when the population is aging and the costs of long-term care services are rising, the need is growing for a product that will ease workers' financial burden of caring for the elderly and disabled, said Samuel X. Kaplan, founder of U.S. Care Inc. in Santa Monica, Calif. 

"There's a tremendously large market out there," he said. "Every day in this country, 5,500 people turn 65. Once a month, you get a thousand people turning 100," and every eight seconds there is another 50-year-old. 

"And don't think long-term care is only for the elderly," he noted. 

"The Social-Security Administration will tell you that 42% of people in this country that are functionally disabled are between the ages of 18 and 64." 

Mr. Kaplan, speaking at the 17th Annual National Education Conference & Expo held by the Self-Insurance Institute of America Inc. in Atlanta, said employers shouldn't automatically turn to an insurance company to fund this benefit. 

As of 1995, 1,262 employers offered long-term care insurance plans, with that number growing by about 23% a year, he said. Only two plans were self-funded, the same ones as today. 

A self-funded plan generally can be less costly than the individual plans offered by insurers because it can avoid many of the expenses associated with state insurance regulation, Mr. Kaplan explained. 

As a self-funded benefit plan, an employer-sponsored LTC program would be free from state regulation under the preemption provisions of the Federal Employee Retirement Income Security Act. 

An employer's self-funded plan wouldn't have the cost burden of having to gain regulatory approval from each state where they offer the LTC plans, Mr. Kaplan said. 

"I can tell you, it can be an unbelievable, horrendous experience," he said of gaining state regulatory approval. 

Self-funded plans also avoid the hassle and expense of keeping up with changing state regulations, establishing a distribution network to market and administer the plans, and operating under a framework of state rules that could include mandated coverages. 

Financial advantages for self-funded plans not only include lower expenses because regulatory approval is easier, but also avoid premium taxes that insurers pay. 

Employer-sponsored plans can earn a higher interest rate on reserves than the 6.5% to 7% that insurers generally pay for keeping those funds, Mr. Kaplan pointed out. "An employer can do much better than that." 

ERISA plans that escape state regulation also allow employers "great latitude in what you can do as far as designing a program," Mr. Kaplan told employers at the SIIA session. 

LTC products available from insurers generally are "me too" products, or copies of other insured plans, thereby offering employers little choice when picking plans for their workers, according to Mr. Kaplan.

As a self-insurer, employers "have the opportunity to really be creative" in designing the benefit options offered to workers, he said. 

Mr. Kaplan urged employers not to simply copy the products that insurers are offering when designing a long-term care plan. "You have to use some ingenuity, some innovation." 

Finding out what type of product will best serve the workforce means taking telephone surveys and holding focus group meetings to determine what workers want and how much they are willing to pay. 

"Based on that, create your product," Mr. Kaplan suggested. "Then you will have something that will sell." 

The LTC program should contain no more than three plan options from which employees can choose, he said, because more options tend to generate confusion and indecision and are harder to explain. 

Aside from financial protection, employers should consider providing benefit choices such as assisted living services, nursing home care, home health care, adult day care and health education, according to Mr. Kaplan. 

He emphasized it is critical for employees to be aware that the sooner they buy coverage, "the better off they are going to be," because premium rates are based on age. 

And it is essential that a plan be portable, so workers can continue the coverage after leaving the job, he advised. That way, coverage continues and the employer continues to collect the premiums. 

Robert J. Calvisi, vp, sales/operations at J.I. Specialty Services, Inc. in Austin, Texas moderated the session. 

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