U.S. Department of Health and Human Services

Preliminary Data from a Survey of Employers Offering Group Long-Term Care Insurance to Their Employees

Steven Lutzky, John Corea, Lisa Alecxih, Laura Marburger and Kathlyn Wee

The Lewin Group

June 23, 1999

PDF Version: http://aspe.hhs.gov/daltcp/reports/1999/ltcinsir.pdf (40 PDF pages)

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This report was prepared under contract #HHS-100-97-0011 between the U.S. Department of Health and Human Services (HHS), Office of Disability, Aging and Long-Term Care Policy (DALTCP) and the Lewin Group. For additional information about this subject, you can visit the DALTCP home page at http://aspe.hhs.gov/_/office_specific/daltcp.cfm or contact the office at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, S.W., Washington, D.C. 20201. The e-mail address is: webmaster.DALTCP@hhs.gov. The Project Officer was Hunter McKay.

The opinions and views expressed in this report are those of the authors. They do not necessarily reflect the views of the Department of Health and Human Services, the contractor or any other funding organization.

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TABLE OF CONTENTS

EXECUTIVE SUMMARY

I. INTRODUCTION

II. FINDINGS

A. Policy Provisions

B. Policy Management

C. Key Features Related to LTC Insurance Enrollment

III. SUMMARY

APPENDICES

APPENDIX A: Range of LTC Insurance Plan Design and Policy Management Features among Surveyed Employers' LTC Insurance Plans

APPENDIX B: Data and Methodology

NOTES

LIST OF EXHIBITS

EXHIBIT 1: Services Covered by Surveyed Employers' LTC Insurance Plans

EXHIBIT 2: Amount of LTC Insurance Coverage Offered by Surveyed Employers

EXHIBIT 3: Range of Nursing Home Daily Benefit Amounts Offered by Each Surveyed Employer Nursing Home

EXHIBIT 4: Range of Lifetime Benefit Maximums Offered by Each Surveyed Employer

EXHIBIT 5: Percent of Employers by Length of Elimination Period

EXHIBIT 6: Percent of Surveyed Employers By Type of Inflation Protection Offered

EXHIBIT 7: Percent of Surveyed Employers Offering Non-Forfeiture Benefits by Type

EXHIBIT 8: Percent of Surveyed Employers with Return of Premium at Death

EXHIBIT 9: Percent of Surveyed Employers Offering Care Management by Type

EXHIBIT 10: Percent of Surveyed Employers Offering LTC Insurance to Eligible Groups by Type

EXHIBIT 11: Monthly Premiums for a Sampled Employer's LTC Insurance Plan by Plan Features

EXHIBIT 12: Monthly Premiums by Issue Age for a Sampled Employer's LTC Insurance Plan

EXHIBIT 13: Percent of Surveyed Employers Contributing to LTC Insurance Premiums

EXHIBIT 14: Prevalence of Underwriting among Surveyed Employers, by Eligible Group

EXHIBIT 15: Percent of Surveyed Employers Allowing Selected Underwriting Methods, Among Those Allowing Underwriting

EXHIBIT 16: LTC Insurance Participation among Surveyed Employers

EXHIBIT 17: Employers by Number of Benefit Level Choices They Offer Daily/Monthly Benefit

EXHIBIT 18: Prevalence of Communication Measures Observed Among Surveyed Employers

EXHIBIT B-1: Surveyed Employers by Number of Full-Time Employees

EXHIBIT B-2: Years Surveyed Employers Have Offered LTC Insurance

EXECUTIVE SUMMARY

Private long-term care insurance provides one of the few available mechanisms for individuals to protect themselves against the catastrophic costs of long-term care. Long-term care (LTC) insurance sold through employers has advantages over policies available through the individual market that may increase sales, including:

• Lower premiums due to:

  • More effective marketing to individuals at younger ages, when premiums are lower;
  • Administrative and agent commission savings;
  • Potential for employers to use bargaining power to reduce insurers' profit percentages;

• Increased access to coverage, due to less stringent screening criteria or absence of screening (i.e., guarantee issue);

• Increased ease and comfort of purchase, due to fewer coverage decisions required.

Because a majority of adults already receive some insurance benefits through the work place, the employer group LTC insurance market holds impressive potential for protecting millions more Americans from catastrophic long-term care costs. Proposed legislation that would make group LTC insurance available to federal employees could be a major stimulus for increasing the size of this market.

This interim report provides timely information about current practices in the employer group LTC insurance market that can inform federal policy makers and employers in deciding how to construct a group LTC insurance offering. The interim report summarizes data collected from a survey of employers offering group long-term care insurance to their employees. This survey is part of a study funded by the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services investigating current products and best practices in the employer group LTC insurance market.

The preliminary data indicate that among employers offering the product, access to coverage is greater in the employer market than in the individual market. A majority of employers offered lighter underwriting or even guarantee issue policies (i.e., did not require health information) during initial offerings, to at least active fulltime employees. In addition, a majority offered coverage to at least one group in addition to full-time active employees (i.e., parents/in-laws, spouses, and retired employees), potentially extending the benefit well beyond the size of the employee population.

The survey also found that surveyed employers usually limited the number of benefit choices considerably. For example, a majority offered three or fewer benefit amount options. Nearly all employers used a single LTC insurer.

At the same time, the data suggest that the benefit features of employer group plans generally resemble individually purchased policies:

• Employers offer a full range of coverage for most recognized LTC services, with most including a 60 or 90 day elimination period (the deductible period between qualification for benefits and the first day benefits can be received).

• All surveyed employers offered inflation protection with half offering it as part of the initial premium and half providing the option to upgrade benefit levels in the future (future purchase option).

• Just over half of the surveyed employers' plans offered some type of "non-forfeiture" benefit that would provide the purchaser some level of benefits if he or she lapses (i.e., if the policy because they stop paying premiums).

• The vast majority of plans (all but two) required the employee to pay the entire premium.

Participation rates varied considerably by employer. While nearly 40 percent experienced participation rates below two percent, almost 30 percent had participation of 10 percent or higher, and one employer exceeded 40 percent participation.

While these tabulations provide important information about the range of approaches to LTC insurance that exist in the employer group market today, the data are preliminary. The findings are indicative of trends in the employer LTC insurance market, but the sample is not large enough to justify a claim that results are representative of all medium and large employers offering LTC insurance. The sample size (39 employers, reflecting a total eligible population of about 900,000 employees) is also not large enough to allow for detailed subgroup comparisons. (Note: the universe of large and medium employers offering long-term care insurance is itself small, estimated at about 825 in 1998.) However, pending congressional legislation necessitated release of preliminary information early, so that policy makers and administrators have as much information as possible about the features of a successful LTC insurance offering to employees. A more comprehensive report of the survey's findings will be released after September.

I. INTRODUCTION

Congress is considering legislation that would make group long-term care (LTC) insurance available to federal workers. This interim report is intended to inform these deliberations and provide information on the status of the group long-term care insurance market and the characteristics of the products now offered by a sample of large and medium size employers to their employees. The survey data reported here represents the most current information available on the employer LTC insurance market.

Sponsorship of a long-term care insurance policy by the federal government could be an important stimulus for increasing the size of the private LTC insurance market. The sheer size of the federal government could dramatically increase the size of the market. The federal government is the nation's single largest employer with 2.8 million employees in 1997.¹

Beyond the size of the federal market, endorsement of a policy by the federal government could send a powerful message to other employers and employees as well. In conjunction with tax incentives included in the Health Insurance Portability and Accountability Act of 1996 (HIPAA), a federal employee offering may send the implicit message to consumers that LTC insurance is an effective way of covering long-term care costs. As a result, other employers may be more likely to provide such coverage and employees may be more likely to participate when a policy is offered.

An overview of the long-term care insurance market completed for the Health Care Financing Administration (HCFA) in 1996 found that regulators, consumer groups, and industry representatives generally agreed that expanding the employer-based market for private long-term care insurance would put the product within the reach of substantially more people.² The employer group LTC insurance market possesses a number of important advantages over the individual market for LTC insurance, including:

• Better vehicle for growth -- The employment of most working-age persons and the fact that the large majority already receive some insurance benefits through their work place, including heath and life insurance,³ would appear to make the workplace a possible vehicle for substantial LTC insurance sales growth. If just 10 percent of the working-age population over age 45 decided to purchase a policy, the number of long-term care insurance policies sold through employers would increase to nearly seven times current sales.⁴

• Lower premiums -- Employer-group policies have four advantages that make premiums less expensive than in the individual market:

  • Employer-based plans allow LTC insurance to be marketed more effectively to individuals at younger ages. Younger purchasers face substantially lower annual premiums. At age 50, a long-term care policy costs less than half what it would if purchased at age 65.⁵ Although younger individuals can purchase LTC insurance policies in the individual market, they may be more likely to do so if offered through an employer.
  • Group policies can be sold and processed en masse, which results in administrative and agent commission savings.
  • Employers can use their bargaining power to obtain concessions from the insurer, such as lower profit percentages that will lower premiums, while still building adequate reserves.

  In focus group discussions, insurers estimated that group policies are generally 10 to 20 percent less expensive than comparable individual policies.

• Increased access to coverage -- In the individual market, insurance companies screen all potential insureds applying for coverage and deny coverage to those considered high risk. In the employer group market, many plans use less stringent screening criteria, or do not require any screening (i.e., guarantee issue).

• Increased ease and comfort in purchasing LTC insurance -- In the employer group market, the employer acts as an intermediary between the insurer and the potential insured. The employer can simplify the coverage decisions their employees face by simplifying the benefit structure. Employees may also be more likely to purchase a policy if they have affinity for their employer and the employer demonstrates support for the offering.

For these reasons, employer provided insurance is one of the fastest growing segments of the private long-term care insurance market, with over 800 employer sponsored LTC insurance plans introduced between 1995 and 1998. Between 1997 and 1998, the number of new employer groups increased by 39.2%.⁶ By 1998, this market consisted of approximately 1,800 employers offering policies.

This interim report provides timely information about current practices in the employer group LTC insurance market that can inform federal policy makers and employers in deciding how to construct a group LTC insurance offering. The interim report summarizes data collected from a survey of employers offering group long-term care insurance to their employees. This survey is part of a study funded by the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services investigating current products and best practices in the employer group LTC insurance market. A description of the data and methodology used for this interim report is included in Appendix A. A more comprehensive report of the survey's findings will be released after September.

II. FINDINGS

Employer group LTC insurance policies can vary widely in their plan design and policy management features (Appendix A). While employer group plans generally resemble individual policies, three important differences should be highlighted: (1) the greater access to coverage that many employer group plans make possible through guaranteed issue offerings or more limited underwriting; (2) oversight by the employer of their employee's interests and (3) lower premiums.

The remainder of this interim report focuses on the characteristics of the 39 surveyed employer group LTC insurance plans in more detail. We first present data on policy provisions of the employers' plans, then describe how employers implement and manage the benefit, and conclude with key features related to successful enrollment efforts.

A. Policy Provisions

1. Coverage

Coverage under employer group plans can vary based on the services included, the payment maximums allowed, the deductible periods required before benefits are paid, and the amount of inflation protection included (if any).

Services Covered

Skilled nursing facility coverage was standard in all employer LTC insurance plans. Home care coverage and adult day care were offered by all employers surveyed, but were not automatically included in all plans. The election of optional coverage results in increased premiums. The majority also offered respite care, homemaker/chore services, assisted living, and home modification (Exhibit 1).

Benefit Amounts

Daily Benefit Amount (DBA)--The daily dollar amount provided (if a per-diem policy) or the daily spending amount covered; usually differs by service setting.

Monthly Benefit Amount (MBA)--An alternative to the DBA that allows more flexibility in spending on any given day of the month.

The amount of coverage varied across employers, and most employers offered more than one level of benefits. Exhibit 2 summarizes the benefit levels offered by the surveyed employers.

Most plans (29 of 39) defined benefits in terms of a daily benefit amount (DBA) or daily maximum that capped the amount covered per day. Among those with DBAs, DBAs of $80-$120 were the most common (with all but one offering $100), however, some plans offered DBAs as low as $40 or as high as $300 (Exhibit 3).

DBAs for home care were most often set at one half of the nursing home DBA ($50 was the most common home care DBA offered), but several plans set the home care DBA at between 60 percent and 100 percent of the nursing home DBA. Home care DBAs of $40 to $80 were common, but some plans offered home care benefits as low as $20 per day or as high as $200 per day.

Ten plans defined benefits in terms of a monthly benefit amount (MBA), most offering a wide range of monthly benefits (i.e., from $1,000 to $6,000 per month for nursing home care). All plans with MBAs set home care benefits at half the nursing home MBA.

Exhibit 3 includes plans with monthly benefit amounts, but displays them converted to daily benefit amounts for comparison purposes. It is important to note that a monthly benefit provides the beneficiary with more flexibility in daily spending than a daily limit allows. Spending on any given day may be above the average daily amount, as long as the monthly amount is not exceeded by the month's end.

Lifetime maximums also varied within and across employers (Exhibit 4). Most plans (34 of 37) defined their lifetime maximum benefits in dollar terms. Most of these offered lifetime limit options between $100,000 and $200,000. One plan some had a limit as low as $21,000, while two others had unlimited lifetime benefits. Three plans set lifetime limits on the number of years of care provided, ranging from two to six years.

All surveyed plans used a pool-of-money approach to their lifetime limits, rather than having separate lifetime limits for nursing home care and home care. This pool-of-money approach covers claimants for whatever mix of covered services they wish, up to the lifetime maximum.

Elimination Periods

All plans required some elimination or deductible period before an individual could receive benefits. Nearly three-quarters (73 percent) of employers had only one elimination period for all plans. Twenty-two percent of employers had different elimination periods for nursing facility care and home care, and five percent of employers offered differentially priced plans with different elimination periods. Over 70 percent of employers used an elimination period of 90 days (Exhibit 5).

Inflation Protection

Five Percent Compount--Benefits increase by five percent compounded annually with no increase in premiums.

Five Percent Simple--Benefits increase by five percent of original benefit amount annually (not compounded) with no increase in premium.

Future Purchase Option (FPO)--Option to periodically purchase increased indemnity payments in the future without medical underwriting. Additional premiums reflect the current age of the insured.

Inflation protection options provide an annual or periodic adjustment of the benefit amount so that it retains more of its value over time. Some plans offer the purchase of inflation protection at the time of the LTC insurance purchase, so that benefit levels increase annually from the date of purchase without a corresponding increase in premiums. This almost always takes the form of either a five percent compound or five percent simple annual adjustment.

A common alternative is the future purchase option (FPO), which allows the insured to periodically purchase increased indemnity payments without medical underwriting. The additional coverage is priced at the insured's current age (i.e., as opposed to his/her age at the time of initial LTC insurance purchase) and will cost more than if the coverage had been bought when the insured first purchased the policy. However, increases in premiums in a workplace environment might be similar to wage increases. This differs from most purchasers of individual long-term care insurance who are likely to buy in their mid-60s and to be on fixed incomes.

All surveyed employers offered some type of inflation protection in their LTC insurance plans. Half offered only a future purchase option, which did not add to the initial cost of the policy. Nearly equal numbers offered only a five percent simple option (18 percent) or only a five percent compound option (16 percent), while the remainder offered multiple options (Exhibit 6).

2. Consumer Protection Features

Policyholders generally do not require benefits until years after purchasing a LTC insurance policy. Therefore, they need to keep current with premium payments over a long period of time in order to keep the policy in force. An individual may lapse (i.e., stop paying premiums) if, for example, the individual cannot afford to continue paying premiums. LTC insurance policies include a number of consumer protection features designed either to prevent the consumer from lapsing, or if she or he does lapse, to provide some benefit for premiums paid. Two common consumer protection features are non-forfeiture benefits and return of premium at death.

Non-Forfeiture Benefits

Non-forfeiture protection can take a number of forms, including:

• Reduced paid-up -- The policy pays a reduced daily benefit amount but over the same benefit period defined in the policy.

• Return of premium at lapse -- The policy returns a portion of the premiums (but not interest) paid in if the policyholder lapses. The amount returned to the policyholder is tied to the number of years premiums have been paid in (e.g., less than five years: no premiums returned; five to nine years: 25 percent of premiums returned; 10-14 years: 50 percent returned; 15-20 years: 75 percent returned; 20 or more years: 100 percent returned).

• Shortened benefit period -- The policy pays the same daily benefit defined in the policy but over a shorter benefit period.

• Benefit bank -- Payments are made to an account as premiums accrue. This account can then be used to pay claims at the maximum daily benefit amount in force at the date of lapse, until the account is exhausted.

As displayed in Exhibit 7, just over half of the surveyed employers made available at the employee's option some sort of non-forfeiture benefit. In all but two cases, non-forfeiture benefits took the form of a reduced paid-up option. Four employers offered return of premium at lapse.

Return of Premium at Death

Return of premium at death is a feature that returns a portion of the premiums, less LTC claims paid, to the insured's estate when the insured dies. This form of non-forfeiture is usually built into the policy. Just over 60 percent of all sampled employers included a return of premium at death feature. This feature was somewhat more common among large employers, with 81 percent of them including it in their LTC insurance benefit package (Exhibit 8).

3. Care Management

All employers' plans offered telephone consultations with a care manager who would assist in accessing and coordinating services. Nearly all also offered face-to-face consultations. Typically, these services are provided by care managers who work for (or contract with) the LTC insurance carrier. Reimbursement for an individual case manager is much less common.

Nearly 40 percent of employers also required pre-approval of services by a physician before LTC insurance benefits would be paid (Exhibit 9).

B. Policy Management

In addition to the plan design features described above, we surveyed employers about other key factors related to premiums, enrollment, and implementation of an LTC insurance plan. We provide separate charts for large employers (those with 5,000 or more employees) where the issue may be particularly relevant to an offering to federal employees.

1. Eligibility

Exhibit 10 shows that the majority of employers offer LTC insurance to at least one group in addition to full time active employees. Among large employers, nearly 90 percent include all four of the listed groups in the LTC insurance offering (full-time active employees, their spouses, parents/in-laws, and retired employees and their spouses).

2. Premiums

Premiums varied widely across plans, reflecting the wide range of benefit levels available, the sharp premium differences by age, and other plan features that differ across plans, such as inflation protection and nonforfeiture. The variation in LTC insurance plan features across employers makes it difficult to compare premiums across the entire sample of employers for a well-defined benefit. More generally, for an individual at age 50 with a plan containing both nursing home and home care coverage, premiums ranged from $7.30, to $92.10 per month, reflecting difference in plan design and underwriting.

Optional plan features can increase the monthly premium well above the base plan premium. Exhibit 11 shows the range of monthly premiums available through the LTC insurance plan of one sampled employer, as well as the percent increase in premium over the base plan that results from the addition of the specified plan feature. For a person purchasing LTC insurance at age 50 through this plan, premiums range from $31 to $132.

For reasons outlined earlier (i.e., administrative and commission savings, potential for lower insurer profit margins), employer group plans tend to have considerably lower premiums than individually purchased policies for the same age. However, because the survey only included employer-based plans, we cannot compare premiums in the employer group LTC insurance market to those in the individually purchased market. The data do illustrate, however, the premium differential associated with younger purchase of a LTC insurance policy.

Exhibit 12 shows how monthly premiums increase with issue age for another sampled employer's LTC insurance plan both with and without optional plan features included in coverage. As is typical, monthly premiums for this insurer are more than four times as high if LTC insurance is purchased at age 70 than if purchased at age 50. The lower premiums at younger ages, combined with the employer group market's potential to reach these younger individuals, suggests that employer group LTC insurance could have a profound effect on the levels of LTC coverage in the U.S.

3. Employer Contributions

The vast majority of surveyed employers (94 percent, or all but two) did not contribute to the LTC insurance premium (Exhibit 13). One employer paid for a basic product that covered nursing home care, but not home care. Another employer paid 20 percent of the LTC insurance premium for a basic LTC insurance plan covering both nursing home and home care. Employees then paid the full premium for additional buy-up options, such as automatic five percent simple inflation protection.

One reason that employers tend not to contribute to LTC insurance may be related to HIPAA's prohibition of LTC insurance in cafeteria plans. Employers often use a cafeteria plan as a vehicle for contributing to employees' insurance premiums (e.g., health insurance, life insurance). The HIPAA prohibition may discourage employers from contributing to LTC insurance premiums.

4. Factors Other than Plan Design that will Have Strong Effects on Premiums

In addition to plan design, important factors affecting premiums include underwriting practices, participation rates, and lapse rates. Data on underwriting and participation are presented below. We did not collect data on lapse rates.

Underwriting

Insurers determine if someone applying for a policy should be sold a policy through a process called underwriting. Insurance companies underwrite policies in an attempt to avoid enrolling individuals likely to use services soon after purchasing a policy. More restrictive underwriting can contribute to reduced premiums, and also to reduced access to coverage, by avoiding this adverse selection.

An important advantage of the group LTC insurance market over the individual market is the wider access to coverage it allows. While underwriting is standard in the individual LTC insurance market, many employer group plans are made more accessible through one of the following:

• Guarantee issue, where applicants are approved for coverage without underwriting. Employers may make a guarantee issue offering to certain groups (e.g., active employees, new hires) or at certain times (e.g., during the initial offering).

• Short-form underwriting, which allows an individual to apply for coverage using a shortened form that does not include detailed medical history questions, and does not require the applicant to have a physical exam. The form is typically one page and consists of six or fewer questions, all of which are directly related to current need or recent use of long-term care services.

Exhibit 14 and Exhibit 15 describe the extent and type of underwriting among surveyed employers. Exhibit 14 displays the proportion of employers who allow underwriting for potential LTC insurance enrollees, by eligibility group. It also identifies the proportion of employers who waive the underwriting requirement for eligibility groups under certain circumstances. The chart also shows large employers separately, but because the differences are not dramatic given the sample size, we describe highlights from the full sample:

• Two-thirds of employers make a guarantee issue offering (i.e., without underwriting requirements) during the initial offering for active employees.

• Guarantee issue to other groups (spouses, retirees) was rare, and almost always at initial offering.

• Guarantee issue for new-hires (e.g., for a one month period after an employee is hired) is prevalent but less common than guarantee issue during the initial offering (38 percent of employers do not allow underwriting for newly hired active employees).

• One-fourth of employer plans have underwriting of their active employees.

• Nearly all employer plans have underwriting of parents, spouses and retirees at all times. However, when there is underwriting, it is often short form underwriting. Some employers make guarantee issue offers to spouses, more often during the initial offering.

Exhibit 15 displays the methods of underwriting used among the plans that allowed underwriting, by eligibility group. Figures are also shown separately for large employers (those with 5,000 or more active employees). Because large employers generally appear to report consistently higher use of the underwriting methods listed, we report highlights for large employers:

• Short form underwriting is much more commonly used than other methods (about three-quarters of underwriting employers use this method to underwrite active employees), and is about equally likely to be used for other underwritten groups.

• Prevalence of medical record review is roughly the same across underwritten eligible groups, including active employees.

• Detailed medical histories, and to a lesser extent telephone interviews, are more often used for retirees, spouses, and parents than for active employees.

• Employers tend to allow use of the same underwriting methods on all non-active-employee groups to whom they offer LTC insurance.

• Large employers are more likely than smaller employers to allow the use of more than one form of underwriting for a given eligibility group.

• The underwriting practices of the surveyed employers illustrate this point. For active employees, a majority of employers provide guarantee issue at the initial offering or when the employee is hired. For other groups, while employers rarely provide guarantee issue, many use the less restrictive short-form underwriting. Exhibit 14 and Exhibit 15 provide greater detail on the extent and type of underwriting among surveyed employers.

Not all employers may be able to choose from the full range of underwriting levels listed above. Representatives from several insurers mentioned in interviews that they may attempt to gather information on an employer's eligible population before allowing short-form underwriting. If a high risk of LTC need is found, these insurers would require more extensive underwriting.

Participation Rates

Employers seek a high participation rate to justify the administrative expense of a new benefit offering, and also to create a critical mass of enrollees to spread the claims risk. Participation rates ranged widely across the surveyed employers (Exhibit 16). While nearly 40 percent experienced participation rates below two percent, almost 30 percent had participation of 10 percent or higher, and at least one employer exceeded 40 percent participation. Participation was much higher among full-time permanent employees than among retirees. In this sample, medium sized employers achieved somewhat higher participation among their active employees than large employers.

Unfortunately, the preliminary data do not contain enough records to allow us to identify the factors that significantly affect participation rates. The descriptive statistics, then, are only suggestive. For example, the data show the average participation rate among large employers in the sample is similar to that for the whole sample (8.8 percent for full time permanent employees and 7.6 percent for retired employees). In addition, while we did not collect information on the age of insureds at purchase (a demographic that could have a strong effect on participation), the average age of active employees in the whole sample was also similar to that among large employers (42 and 44 years, respectively). Note that these percentages are not weighted by number of employees in each organization.

C. Key Features Related to LTC Insurance Enrollment

Given the importance of a high participation rate, employers offering LTC insurance need to identify the measures they can take to encourage enrollment. LTC insurance carriers have suggested that enrollment is strongly related to the following factors: plan simplicity, ease of the enrollment process, the educational efforts of the employer, and the level of affinity and support of the LTC insurance product demonstrated by the employer.

1. Plan Complexity/Simplicity

The decision to buy LTC insurance can be extremely complex. The LTC insurance insurers we interviewed as part of this study consistently stated that individuals are less likely to enroll if they must contend with many decisions and choices.

All but one surveyed employer used a single LTC insurance carrier. One employer used one insurer for a basic benefit and another insurer for an add-on. This employer remarked that, in retrospect, using two carriers was not a good idea because it added too much complexity to the offering. Several other employers cited potential confusion among eligibles as the reason for not using more than one insurer.

Within a single carrier, the number of plan feature choices can be large, and varies considerably across employers. At one extreme, one employer offered a single, "take-it-or-leave-it" option. At the other extreme, several employers required individual decisions on each plan feature, including benefits covered (nursing home only versus home care), daily and maximum benefit amounts, inflation protection, and non-forfeiture. One way some employers limited the number of choices faced by an eligible was to offer a choice among a limited number of pre-defined package plans. Other employers offered several packages, but also required additional decisions within those packages.

Exhibit 17 shows two aspects of the level of decision-making required of eligibles: a choice of daily benefit amounts and a choice of maximum benefit levels. While a quarter of employers offered only one daily benefit amount, more than a third offered three, and one employer allowed eligibles to choose from a scale of 27 amounts.

Although not explicitly illustrated in the exhibits, nearly all of the employers offering multiple daily benefit amounts also offer multiple lifetime maximum amounts.

2. Communicating LTC Insurance to Employees

Our interviews with insurers indicated that the way employers communicated the LTC insurance offering to employees was critical to the success of the offering. Insurers reported that employers whose senior management clearly demonstrated affinity and support for LTC insurance were often the most effective in increasing participation. Employers who communicated the LTC insurance offering in a similar manner to offerings of more standard insurance benefits were often the least effective.

Exhibit 18 lists the ways that the surveyed employers communicated their LTC insurance offering to employees. Commonly used educational vehicles included enrollment meetings, brochures, the company newsletter, and posters (56 to 77 percent of employers). Use of newer technology, such as e-mail, a company intranet, or voicemail, was less common (16 to 22 percent of employers).

Several commonly used measures suggested a degree of affinity and support for the LTC insurance offering by the employer. Sixty-eight percent of surveyed employers attached a cover letter on company letterhead with the enrollment materials, and 63 percent included LTC insurance information at new employee orientations. The clearest demonstrations of employer affinity and support were less common. Senior management announced the program for 44 percent of employers, and senior management introduced the enrollment meeting for 24 percent of employers. Just over one quarter of employers expanded their communications/education budget, and 16 percent included brochures in payroll envelopes. All but one of the surveyed employers used at least one of the approaches listed in Exhibit 18 in communicating the LTC insurance offering to their employees.

EXHIBIT 1. Services Covered by Surveyed Employers' LTC Insurance Plans

NOTE: Information derived from employer's enrollment kits. Alternate plan of care provides options to receive services that are not included under regular policy benefits. Services are generally more appropriate and cost-effective than other forms of care.

EXHIBIT 2. Amount of LTC Insurance Coverage Offered by Surveyed Employers
Daily/Monthly Benefit Amount	Benefit Amount
Nursing Home
Most common daily benefit amounts	$80 - $120
Range of daily benefit amounts (lowest and highest)	$40 - $300
Average of highest daily benefit amount offered by each surveyed employer	$160
Range of monthly benefit amounts	$1,000 - $6,000
Average of highest monthly benefit amount offered by each surveyed employer	$5,300
Home Health Care
Most common daily benefit amounts	$40 - $80
Range of daily benefit amounts (lowest and highest)	$20 - $200
Average of highest daily benefit amount offered by each surveyed employer	$88
Range of monthly benefit amount	$500 - $3,000
Average of highest monthly benefit amount offered by each surveyed employer	$2,700
Lifetime Maximums	Benefit Amount
Most common maximum dollar benefits	$100,000 - $200,000
Range of lifetime maximum benefit defined in dollars	$21,000 - unlimited
Range of lifetime maximum benefit defined in years	2 - 6 years
Average of highest lifetime maximum benefit amount offered by each surveyed employer*	$289,000
% of employers offering unlimited lifetime maximum benefit	5%
NOTES: Data derived from employers' premium schedules and enrollment kits. Twenty-seven employers define benefits in terms of a daily benefit amount, while 10 employers defined benefits in terms of a monthly amount. Thirty-four employers define lifetime maximum benefits in dollar terms, while ten employers (including some of the 34) define the lifetime maximum in years.* This average does not include unlimited benefit amounts.

EXHIBIT 3. Range of Nursing Home* Daily Benefit Amounts Offered by Each Surveyed Employer

NOTE: Two employers did not provide the benefit design materials necessary to determine the daily or monthly benefit amount. * Home care daily benefit amounts (DBA) ranged from $20 to $200. These amounts were typically set as a fraction of the corresponding nursing home DBA. For most of the surveyed employers (78%), the home care daily benefit amount was one half (50%) of the nursing home daily benefit amount. The remaining employers reported home care DBAs ranging from 60% to 100% of the nursing home DBA.

EXHIBIT 4. Range of Lifetime Benefit Maximums Offered by Each Surveyed Employer

NOTES: Thirty-four of the thirty-seven employers with data defined the lifetime maximum benefits in dollar terms. All surveyed employers reported a pool-of-money approach to benefits whereby payments for both nursing home and home care services are deducted from the lifetime maximum benefit amount, with the duration of benefits varying depending on where benefits are received.

EXHIBIT 5. Percent of Employers by Length of Elimination

* For home care or adult day care only.

EXHIBIT 6. Percent of Surveyed Employers By Type of Inflation Protection Offered

EXHIBIT 7. Percent of Surveyed Employers Offering Non-Forfeiture Benefits by Type

EXHIBIT 8. Percent of Surveyed Employers with Return of Premium at Death

EXHIBIT 9. Percent of Surveyed Employers Offering Care Management by Type

EXHIBIT 10. Percent of Surveyed Employers Offering LTC Insurance to Eligible Groups by Type

EXHIBIT 11. Monthly Premiums for a Sampled Employer's LTC Insurance Plan by Plan Features
Plan Features(purchase age 50)	Premium	Premium  Increase Over  Base Plan
Base Plan Only	$31	N/A
Base Plan plus Return of Premium at Death	$32	3%
Base Plan plus Reduced Paid Up at Lapse	$44	42%
Base Plan plus 5% Compound Inflation Protection	$118	280%
Base Plan plus all optional plan features	$132	326%
NOTE: Base plan includes coverage for a nursing home DBA of $100 and a home care DBA of $50.

EXHIBIT 12. Monthly Premiums by Issue Age for a Sampled Employer's LTC Insurance Plan

EXHIBIT 13. Percent of Surveyed Employers Contributing to LTC Insurance Premiums

EXHIBIT 14. Prevalence of Underwriting among Surveyed Employers, by Eligible Group
Extent of Underwriting	Active  Employees	Retired  Employees	Spouses	Parents
All Surveyed Employers
Number of employers offering to group	37	23	31	31
Always some underwriting	27%	91%	77%	97%
Guarantee issue during initial offering	68%	9%	19%	3%
Guarantee issue for new hires	38%	N/A	10%	0%
Guarantee issue at all times	3%	0%	3%	0%
Large Employers Only
Number of larger employers offering to group	16	14	14	13
Always some underwriting	31%	100%	93%	100%
Guarantee issue during initial offering	63%	0%	7%	0%
Guarantee issue for new hires	25%	N/A	0%	0%
Guarantee issue at all times	6%	0%	0%	0%
NOTE: Large employers include those with at least 5,000 active employees.

EXHIBIT 15. Percent of Surveyed Employers Allowing Selected Underwriting Methods, Among Those Allowing Underwriting*
Level of Underwriting	Active  Employees	Retired  Employees	Spouses	Parents
All Surveyed Employers
Number of employers allowing underwriting in group	36	23	30	31
Short form	58%	61%	73%	56%
Detailed medical history	14%	43%	30%	42%
Telephone interview	14%	26%	27%	26%
Medical exam upon request	0%	0%	0%	3%
Medical record review	22%	26%	33%	26%
Large Employers Only
Number of larger employers allowing underwriting in group	16	14	14	13
Short form	73%	71%	79%	77%
Detailed medical history	13%	36%	36%	38%
Telephone interview	27%	36%	36%	38%
Medical exam upon request	0%	0%	0%	0%
Medical record review	40%	36%	43%	46%
NOTE: Large employers include those with at least 5,000 active employees. Regarding underwriting, it should be noted that enrollment kit materials received from many employers who indicated short form use revealed considerable variation in the length of forms referred to as short forms. The shortest included five questions focusing on current use of LTC services and major illness or disability. The longest included nine questions, some with a number of subquestions on specific diseases, conditions, and medical service use.* Among employers who allow underwriting for group listed.

EXHIBIT 16. LTC Insurance Participation among Surveyed Employers
Participation Rate	Percent of All Employers by  Participation Rate		Percent of Large Employers by  Participation Rate
	F/T Permanent  Employees	Retirees	F/T Permanent  Employees	Retirees
2%	39%	70%	50%	71%
2 to 4.9%	19	10	14	---
5 to 9.9%	13	---	7	---
10% and above	29	20	29	29
Total	100%	100%	100%	100%
Range of participation rates	0% to 45%	0% to 40%	0.3% to 45%	0% to 40%
NOTE: The responses to this question was lower than others in the Interim Report.* Participation rate date for full-time permanent employees was collected for 31 of the 37 employers offering to full-time permanent employees. Fourteen (14) of the thirty-one (31) respondents were large employers. Participation rate data for retired employees was collected from ten (10) of the twenty-three (23) employers offering to retired employees. Seven (7) of those respondents were large employers.

EXHIBIT 17. Employers by Number of Benefit Level Choices They Offer Daily/Monthly Benefit

EXHIBIT 18. Prevalence of Communication Measures Observed Among Surveyed Employers

III. SUMMARY

The employer market has the potential to increase significantly the number of Americans having some long- term care protection. While this interim report does not attempt to quantify premium savings, it is clear that administrative savings and bargaining power allow group plans to make LTC insurance available at a discount over plans purchased in the individual market. These preliminary findings suggest additional advantages of the employer market. Access to coverage is greater in the employer market because a majority of employers make an offering available with little or no underwriting. In addition, employers have the ability to communicate information about LTC insurance to their employees that can be more effective than the marketing of individually purchased policies.

APPENDIX A. RANGE OF LTC INSURANCE PLAN DESIGN AND POLICY MANAGEMENT FEATURES AMONG SURVEYED EMPLOYERS' LTC INSURANCE PLANS

Types of Services Covered
Service Covered	Skilled, intermediate, and custodial nursing home care   Home health care Adult day care Alternate care facility Respite care Assisted care Home personal care Homemaker/chore services
Additional Benefits	Alternative plan of care Home modification
Benefit Structures
Daily Benefit Amount	$40-300/day nursing home (most common: $100/day) $20-200/day home health care (most common: $50/day)   $30-250/day assisted living (most common: $60/day)
Monthly Benefit Amount	$1,000-6,000/month nursing home $500-3,000/month home health care $600-3,600/month assisted living
Lifetime Maximum Benefit Amount ($)	Most common: $100,000-$200,000 Range: $21,000-unlimited
Lifetime Maximum Benefit Amount (years)	2-6 years/nursing home 2-10 years/home health care
Elimination Periods	15-180 days (most common: 90 days)
Inflation Protection Option	Most common: Future purchase option (66%) Others: Automatic 5% compound inflation Automatic 5% simple inflation
Benefit Triggers
Benefit Eligibility	Needs assistance with ADLs or has cognitive impairment (or for one pre-HIPPA policy, medical necessity)
Consumer Protection Features
Non-forfeiture Benefit	Most common: Reduced paid-up (45%)   Others: Return of premium at death Return of premium at lapse Shortened benefit period Benefit bank
Care Management
Coordination of Services	Most common: Telephone consultations (100%) Other: Face-to-face consultations Reimbursement for independent case manager
Restrictions on Service Use	Pre-approval of services
Eligibility
Eligibility Groups	Full time employees (100%)   Parents and In-laws (84%) Spouses (84%) Retired employees (62%) All four groups (46%)
Premiums
Premium at ago 50 for plan with NH and HC	$7.30-$92.10 per month depending on insurer, coverage levels, and options   Example plan (DBA=$100 for NH and $50 for HC): No options: $31 All available options: $132
Access to Coverage
Types of guarantee issue offerings	No underwriting for eligible group(s) at all times No underwriting during initial offering for eligible group(s) No underwriting for new hires
Types of Underwriting	Most common: Short form (no medical information required) Other: Detailed medical history, Telephone interview, Medical exam upon request, Medical record review
Prevalence of guarantee issue at initial offering/when underwritten, use as short form	Active employees (68%) Retired employees (9%) Spouses (19%) Parents (3%)
Key Features Related to Enrollment
Plan Complexity/Simplicity	Number of insurers (all but one employer used only one insurer)   Number of benefit level choices (most common: 3 options)
Communicating LTCI to Employees	Most common: Enrollment meetings Brochures Company newsletter Educate at new employee orientation Posters Other: E-mail Company intranet Voicemail Video tape Information in employee handbook

APPENDIX B. DATA AND METHODOLOGY

The tabulations in this interim report are derived from a survey of employers who offer group long-term care (LTC) insurance to their employees. Survey items covered the following topic areas: plan features, the decision to offer LTC insurance, the relationship between LTC insurance and other employee benefits, financing and arrangements with the insurer, education of and marketing to employees, enrollment, evaluation of the LTC insurance offering, and employer demographics. This interim report focuses primarily on key benefit design and implementation features of employer LTC insurance plans. The interim report also presents selected information separately for large employers (5,000 or more employees), because these employers' experience may have more relevance to the federal government as an employer.

We surveyed a sample of medium and large employers offering LTC insurance through major LTC insurers. We defined medium and large employers as employers with 500 or more full-time employees to whom a LTC insurance benefit was offered. This is roughly equivalent to the standard definition of an "establishment" used by the Bureau of Labor Statistics, which is defined as a single location of a business. The sampling frame comprised all such employers with LTC insurance offerings through the nine largest group LTC insurance carriers. These nine insurers are estimated to represent over 90 percent of the employer group LTC insurance market,7 and included the following: Aetna, John Hancock, Fortis LTC, Mutual of Omaha, Prudential Health Group, Metropolitan Life LTC Group, TIAA-CREF, CNA, and UNUM. We supplemented the employer survey with interviews with group LTC insurance sales representatives or group LTC insurance experts from these insurers.

Each of these samples was drawn from the sampling frame of employers constructed from the nine insurers' client lists, the random sample was drawn randomly from this pool. The pilot sample was identified by the insurers, and the special sample was chose by the survey team based on pre-defined criteria indicating particular relevance to an offering for federal government employees.

The broader survey effort included three samples: a pilot sample of nine employers recommended by our insurer contacts, a random sample of 125 medium and large employers in the sampling frame, and a special sample of 32 employers in the sampling frame with offerings that were seen to be of particular relevance to an offering to federal employees. Indicates the percent of employers indicating on the survey that they used a "short form underwriting." It should be noted that enrollment kit materials received from many employers who indicated short form use revealed considerable variation in the length of forms referred to as short forms. The shortest included five questions focusing on current use of LTC services and major illness or disability. The longest included nine questions, some with a number of subquestions on specific diseases, conditions, and medical service use. No data from the special sample was collected in time for this interim report. This interim report combines data from the nine pilot employers and 30 employers from the random sample who have responded to date, for a total of 39 respondents. These 39 employers represent roughly 900,000 employees.

While the number of employers in the sample analyzed in this report is small, it must be recognized that the number of medium to large employers offering LTC insurance in 1998 (our sampling year) was also not large. We estimated the universe to consist of approximately 825 employers in 1998. We base this estimate on the estimated number of firms offering LTCI in 1996 (1,500), projected to 1998 using the annualized growth rate in all employer offerings from 1994 to 1996 (20.8 percent annually), multiplied by the proportion of employers that were medium or large in the latest year observed (i.e., 38 percent in 1995). (HIAA, Long Term Care Insurance in 1995: Research Findings, May 1997). Thus, the sample does not represent an unreasonably small proportion of the total number of possible employers.

Because the data are preliminary, the sample is not large enough to allow for detailed subgroup comparisons, and is not necessarily representative of all medium and large employers offering LTC insurance. For example, we used insurers to identify employers to be included in the sample and to assist with the initial contact. As a result, some insurers' LTC insurance clients are more well-represented than others. UNUM (which sells disability-model policies) was particularly cooperative. Therefore, the sample includes a nearly even distribution of service model and disability model plans, even though interviews with our insurer contacts indicated that the majority of plans in our universe are service model. Policies using the service model provide payments for covered services, while disability model policies (i.e., "per-diem" policies) provide a set dollar amount to be used at the claimant's discretion.

Nevertheless, these tabulations provide important information about the range of approaches to LTC insurance that exist in the employer group market today. The final report will include responses from a larger number of employers, including a greater share of service model plans.

Exhibit B-1 and Exhibit B-2 display some basic characteristics of the sample on which we report. As Exhibit B-1 indicates, all but four of the employers in the sample have more than 1,000 full-time employees, and half of these have 5,000 or more employees.

As Exhibit B-2 indicates, the year the employers in the sample first offered LTC insurance to their employees ranged from 1988 to 1998. Larger employers (those with 5,000 or more employees) were more likely to have offered LTC insurance earlier than smaller employers in the sample.

EXHIBIT B-1. Surveyed Employers by Number of Full-Time Employees

NOTE: Two employers did not report number of employees. * One employer had fewer than 500 employer.

EXHIBIT B-2. Years Surveyed Employers Have Offered LTC Insurance

NOTE: Two employers did not report number of employees. * One employer had fewer than 500 employer.

NOTES

1. U.S. Office of Personnel Management, The Fact Book, 1998 Edition, Federal Civilian Workforce Statistics, September 1998, OWI-98-1, Washington, DC. An offering to federal workers could also include retirees, spouses, and parents/in-laws, further increasing the potential size of an already large offering. In addition, other currently proposed legislation would extend the offering to military personnel.

2. HCFA (1996). Key issues for long-term care insurance: Ensuring quality products, increasing access to coverage, and enabling consumer choice. Report prepared by Lewin-VHI and The Brookings Institution for HCFA. Contract No. 500-89-0047.

3. Employee Benefit Research Institute, "Sources of Health Insurance and Characteristics of the Uninsured," EBRI Issue Brief, no. 158, (February 1995).

4. Based on civilian employment data from the Statistical Abstract of the United States, the number of workers over age 45-64 in 1998 is projected to have been just over 42 million. The Life Insurance and Marketing Research Association (LIMRA) reports approximately 645,000 policies were sold through the employer market by 1998. Thus, assuming 4.2 million persons bought policies, the total number of sales would increase six-fold. U.S. Bureau of the Census, Statistical Abstract of the United States: 1998 (118th edition). Washington, DC, 1998; LIMRA, U.S. Group Long-Term Care Sales Show Mixed Success in 1998, (April 1999).

5. Coronel and Fulton, Managed Care and Insurance Operations Report: Long-Term Care Insurance in 1995, (1997).

6. LIMRA, April 1999.

7. HIAA, Long Term Care Insurance in 1995: Research Findings, May 1997.

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OTHER REPORTS AVAILABLE

A Survey of Employers Offering Group Long-Term Care Insurance to Their Employees: Final Report

Executive Summary   http://aspe.hhs.gov/daltcp/reports/ltinfres.htm

HTML   http://aspe.hhs.gov/daltcp/reports/ltcinsfr.htm

PDF   

Preliminary Data from a Survey of Employers Offering Group Long-Term Care Insurance to Their Employees

Executive Summary   http://aspe.hhs.gov/daltcp/reports/1999/ltcinsires.htm

HTML   http://aspe.hhs.gov/daltcp/reports/1999/ltcinsir.htm

PDF   http://aspe.hhs.gov/daltcp/reports/1999/ltcinsir.pdf

Research and Other Developments of Interest in Employer Group Long-Term Care Insurance

HTML   http://aspe.hhs.gov/daltcp/reports/rn19.htm

PDF   http://aspe.hhs.gov/daltcp/reports/rn19.pdf

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To obtain a printed copy of this report, send the full report title and your mailing information to:

U.S. Department of Health and Human ServicesOffice of Disability, Aging and Long-Term Care PolicyRoom 424E, H.H. Humphrey Building200 Independence Avenue, S.W.Washington, D.C. 20201FAX:  202-401-7733Email:  webmaster.DALTCP@hhs.gov

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