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Tailored LTC

The following is an excerpt from an article which appeared in the February, 1998 edition of Employee Benefit News:

Tailored LTC

More responsive policy features and a clearer benefits context would improve the fit for employees

By Craig Gunsauley

In the annals of benefits fashion, long-term care (LTC) insurance has been an ill-fitting garment among employee programs, attracting few sponsors and garnering low participation rates when it is offered. 

Experts agree on three things about LTC insurance: employees are interested; some will definitely need it; yet group market participation averages 4% to 7%. So should benefit managers even try to fit LTC into their programs? 

The offerings can be successful, if the sponsor surveys employees on what benefits they want and need, negotiates for an appropriate policy, and invests in employee communication and education, maintains Samuel Kaplan, founder and chairman of U.S. Care in Santa Monica, Calif. 

Kaplan should know. He has more than 35 years' experience in insurance and has specialized in long-term care since the early 1980s, helping guide breakthrough programs such as those of the California Public Employees Retirement System (CalPERS) and Hewlett-Packard. 

First of all, "you can't design a long-term care program that has any hope of success without surveying the employees to find out what it is they really want and what they can afford," Kaplan notes. "That's how you get participation." 

Custom designs

Certainly, some of the employee feedback will indicate LTC benefits would be a non-starter. On the other hand, "if you do the surveys and do the focus groups and listen to what the people say, you will come up with programs that have high-response rates. If you just take something off the shelf that some guy sitting in some office in Boston or someplace devised, you will get 2% or 4% enrollment on this kind of product. That's dumb." 

Kaplan says that every focus group identifies three aspects of LTC coverage that are important: the need to remain independent in the home, to not burden relatives or friends and to protect assets. 

"People want broad benefits, they want to be protected and they want to protect their assets," Kaplan says. "That was paramount in every focus group we did, in every survey we did." 

Michael McGinn, a Segal Company consultant in Atlanta, Ga., agrees the group LTC market has basically been unsuccessful," with major insurance carriers coming to believe that a 4% to 6% participation rate in the voluntary products was normal. 

"More attention needs to be paid to product design. It needs to be a professional challenge to the insurance industry. You have a product that 96% of the people aren't buying and they need it. What can you do to improve these products?" 

Haute couture

In 1992, when the New York State United Teachers (NYSUT) wanted to offer an LTC benefit to members, it collaborated with the Segal Company and formed a committee of local leaders, including a geriatric specialist who worked with retired teachers. 

This resulted in an LTC offering that incorporated many attractive features not generally available on the individual market—at rates that averaged 30% less, says Dorothy Chapman, director of benefits. NYSUT was able to negotiate with MetLife to underwrite the policies without commissions. 

NYSUT's long-term care program emphasizes benefits that allow recipients to remain in their own homes as long as possible. Those who sign up for this LTC policy complete their premium payments in 20 years. 

There is a non-forfeiture of benefits clause that allows someone who stops paying premiums to still receive a partial benefit if long-term care is needed. Also, premiums are returned to the policyholder's estate if that person dies before age 65. 

The group also puts a lot of communication and education resources into promoting LTC as well as its other benefits programs, Chapman says. "We caution our members that this product is not for everyone. Because it is a high-priced product." 

"We feel that we came out with the Cadillac of long-term care models," she adds. 

Broader context

UNUM Life Insurance Company of Portland, Maine, currently writes about 70% of the policies in the group LTC market, according to vice president Nancy Magee. UNUM estimates that 1% of the population between ages 18 and 64 has LTC insurance, as does 7% of the population 65 or over. 

To grow those numbers, the company recently completed research involving focus groups and an in-depth survey of 1,000 people on approaches to providing LTC. The findings stressed the need to better educate consumers in the group market about long-term care and work with them to find the coverage best suited to their needs, Magee reports. 

"We're going to look at pulling long-term care into a financial planning perspective and deal with it from there," she says. "UNUM has financial planning and counseling available to all employees through an outside vendor. I would look to wrap it into those kinds of things." 

"If you wrap it into financial planning, as part of retirement planning, it takes away some of the sting of thinking about long-term care events. It's unpleasant enough to think about being in poor enough physical shape that you need long-term care services, at home or particularly in a nursing home/assisted living type of environment." 

Layered look

The Segal Company's McGinn agrees not only that LTC needs to be part of retirement planning, he believes it should be wrapped with other coverages. 

"On a stand-alone basis, the long-term care doesn't seem as valuable to employees as it really is," McGinn says. "Part of the answer seems to be wrapping LTC in a synergistic way with other exposures" such as long-term disability, life insurance and capital accumulation. "I think benefits managers can expect to see some hybridization of long-term care programs that will make them more attractive." 

Retirement planning seminars are a particularly good time to talk about LTC, says Rick Storms, a financial planner with ReliaStar in Minneapolis, Minn., since education is first necessary to help employees assess coverage needs. For example, the investment might not be worthwhile for people who can afford to pay for treatment if necessary, or for those with few assets to protect. 

"It's certainly one of the more important pieces of the asset protection part of a financial plan," Storms says. "If you have the need for long-term care, it can wipe out the average American's assets in a matter of months." 

Storms says he hears many questions about LTC during the financial planning seminars he presents. "People are extremely interested in long-term care. there are a ton of questions about this. Certainly, the interest is there in a big way. They see the issue with their parents and for themselves. 

"Once they understand long-term care is appropriate for them, you can work through what features are important and how much each feature costs," he explains. 

Given the evolution in LTC coverage, Storms thinks one of the most important features to consider is coverage upgrades. "If I get 'generation two' in long-term care coverage, and 10 years later they have 'generation five' with much better benefits, can I be grandfathered in to get that policy? Most companies allow you to do that," he says. 

Meanwhile, at least, Kaplan is encouraged that two of the most common myths about long-term care coverage—that it's provided by group health or paid for by Medicare—are less prevalent today than a few years ago. "More and more people are beginning to get the message." he concludes. 

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