U.S. Department of Health and Human Services

A Comparative Analysis of the Socio-Demographic and Attitudinal Characteristics of Active Buyers and Non-Buyers of Long-Term Care Insurance in the Federal, Private and Public Sectors

LifePlans, Inc.

August 25, 2004

PDF Version (35 PDF pages)

This data brief was prepared under contract between the U.S. Department of Health and Human Services (HHS), Office of Disability, Aging and Long-Term Care Policy (DALTCP) and Abt Associates. The brief was written by LifePlans, Inc. For additional information about the study, you may visit the DALTCP home page at http://aspe.hhs.gov/_/office_specific/daltcp.cfm or contact the ASPE Project Officer, Hunter McKay, at HHS/ASPE/DALTCP, Room 424E, H.H. Humphrey Building, 200 Independence Avenue, SW, Washington, DC 20201. His e-mail address is: Hunter.McKay@hhs.gov.

I. BACKGROUND

One of the more ambitious proposals for encouraging growth in the private insurance market was passage of the Long Term Care Security Act (Public Law 106-265). This Act was passed in the summer of 2000 and was signed into law on September 19th of that year. It authorized the U.S. Office of Personnel Management (OPM) to contract for a long-term care (LTC) insurance program for federal employees. Coverage would be available to active federal employees and annuitants (civilian retirees), as well as active and retired members of the uniformed services. "Qualified relatives" of active workers and military personnel including spouses, adult children, parents, and parents-in-law would also be covered by the program. OPM expected that, like the health and life insurance programs it administers, the Federal Long-Term Care Insurance Program (FLTCIP) would become the largest employer-sponsored LTC insurance program in the nation.

The development of the program was in part meant to send a message to other employers around the country that a "progressive" employer is one that offers LTC insurance to its employees. Naturally it was expected that implementation of the program would spur additional interest and growth in the market. The program began in earnest in July 2002, which constituted the beginning of the open enrollment period. The carriers underwriting the program -- John Hancock and MetLife -- formed a joint venture called Long Term Care Partners, LLC, which is devoted exclusively to administering the program.

Long Term Care Partners conducted one of the largest LTC educational campaigns ever. More than one million people requested enrollment kits. As of August 2004, more than 300,000 applications had been received and more than 210,000 policies issued. About 64% of enrollees were active employees and spouses, 31% annuitants and their spouses, and another 5% surviving spouses, parents/in-laws and adult children. Thus, in relatively short order, the FLTCIP became one of the largest group programs in the United States. In part this was due to the significant marketing and enrollment activities including more than 2,100 educational meetings, briefings to human resources staff and outreach programs to affinity groups.

The large number of enrollments affords a unique opportunity to better understand the attitudes and perspectives of both working and retired individuals regarding LTC concerns, the importance of planning, and the role that insurance may (or may not) play in meeting the needs of disabled individuals. An examination of such attitudes can assist policymakers as well as insurers to better understand marketplace opportunities and barriers, and devise strategies to encourage growth in the market.

II. PURPOSE

This is the seventh in a series of data briefs based on the information collected from active buyers and non-buyers of the federal program, other public LTC insurance programs, and private employer group insurance plans. The purpose of this data brief is to analyze survey data collected from members of the federal family and compare their attitudes and opinions to those of individuals offered coverage in other public programs as well as those offered coverage in private sector employer-group settings. The analysis focuses on the attitudes, opinions and motivations of individuals who purchased and did not purchase policies, and on their experience with LTC, and opinions about LTC insurance. Relevant research questions answered in this brief include (but are not limited to) the following:

• How do the demographic and characteristics of active buyers and non-buyers differ across these market segments?
• What are the attitudes and opinions about retirement planning among active buyers and non-buyers across these market segments?
• What are the similarities and/or differences in knowledge of LTC and insurance among the samples?

III. METHOD AND SAMPLE

Long Term Care Partners used mail surveys to collect information from active buyers and non-buyers. For purposes of this research, the active sample consists of employees who are actively working. A "buyer" is someone who has purchased the insurance plan and paid premiums beyond the free look period. A "non-buyer" is defined as someone who expressed interest in a program but had not purchased the plan at the time that the survey was completed.

Three market segments are analyzed: (1) The Federal Long-Term Care Insurance Program "(FLTCIP)"; (2) The Employer Group market "(Private Programs)"; and (3) Other Public LTC Insurance Programs "(Public Programs)". Table 1 shows the number of active buyer and non-buyer respondents in each market segment. As shown, roughly 3,700 individuals participated in the various surveys of actives, all of which have been conducted within the last five years.¹ The number of employers represented in the "Private Programs" sample is nine and there are four large state programs represented in the "Public Market" category. It should be noted that not all of these interviewees have responded to all of the questions that are presented here and in a number of cases, comparability issues preclude direct comparisons of responses across surveys.

The analyses are conducted separately for active buyers and non-buyers and unless otherwise noted, all of the differences among the samples described in this brief are statistically significant at the 5% level or better. Also note that the reference group to which most comparisons are made is the FLTCIP.

IV. FINDINGS

A. Socio-Demographic Characteristics

Figure 1 summarizes important demographic characteristics of the active sample by market segment. As shown, compared to other market segments, buyers of the FLTCIP tend to be somewhat older, are less likely to be married, and more likely to be male than buyers in the other market segments. The average age of buyers of the FLTCIP is 53 years whereas for other public programs it is 50 years; the private programs examined have the youngest average age -- 47 years. FLTCIP buyers also tend to have higher income levels, which may reflect the fact that they are also older, hence have more years of experience in the labor force. On the other hand, compared to buyers in the private market they are less likely to have accumulated high levels of liquid assets and they are also less likely to have children living nearby. This suggests that many of the FLTCIP and Public Program buyers may view having LTC insurance as enabling them to purchase services that would otherwise have been provided by family members. In contrast, private program buyers, who are more likely to be married and have children living nearby, may view the role of the insurance as protecting higher levels of accumulated assets or as meeting other objectives.

Figure 1: Demographic Characteristics of Active Buyers by Market Segment

Source: Analysis of data from the FLTCIP, 2003; America's Health Insurance Plans, 2000; MetLife, 2001; MedAmerica, 2000.

Figure 2 compares the demographic characteristics of individuals who chose not to purchase a policy by market segment. As shown, non-buyers of the FLTCIP tend to be older than those in other market segments -- 53 years compared to 49 years in public programs and 45 years in private programs. They also tend to be more male and have higher levels of income yet lower levels of assets. In contrast to active buyers there are no significant differences in the proportion that are married and have children living nearby across the market segments.

Figure 2: Demographic Characteristics of Active Non-Buyers by Market Segment

Source: Analysis of data from the FLTCIP, 2003; America's Health Insurance Plans, 2000; MetLife, 2001; MedAmerica, 2000.

When we examine and compare buyers to non-buyers across market segments, we find that the greatest variable of difference that is consistent across markets is wealth: non-buyers tend to have lower levels of assets and lower incomes than buyers.

B. Attitudes and Opinions about Retirement Planning and Long-Term Care

One thing that we know from previous briefs is that federal employees as a whole seem to be active in planning for their retirement and understand the potential LTC risks associated with later life. One would expect that buyers would at least be most likely to feel confident about their planning for both retirement and LTC, and more likely to be concerned about being prepared for future LTC needs. We asked a series of questions designed to illuminate differences across markets and between buyers and non-buyers regarding these issues.

Figure 3 shows how buyers across market segments feel about retirement and LTC planning. Many of the questions were not asked of Private Program buyers so comparisons to this group are somewhat more limited. What is striking is the very high percentage of FLTCIP buyers who have done retirement planning and who have given a great deal of thought to paying for LTC when compared with buyers of other public programs. This may reflect the very targeted and focused marketing and education campaign to which the FLTCIP buyers were exposed.

Figure 3: Attitudes about Retirement Planning among Buyers by Market Segment

Source: Analysis of data from the FLTCIP, 2003; America's Health Insurance Plans, 2000; MetLife, 2001; MedAmerica, 2000.

Somewhat surprisingly, private program buyers are more likely to express concern about how they will pay for LTC expenses than are FLTCIP buyers. This may reflect an underlying uncertainty about the continued value of the product or about the stability of the company offering the product. Given the very strong affinity among federal employees, the fact that they are somewhat less concerned about paying for LTC may reflect their belief that the government will continue to protect their interests well into the future. Alternatively, that relatively high percentages of buyers in each market segment continue to worry about paying for LTC suggests that there may remain uncertainty about the product or about the level of coverage chosen.

The insurance industry has invested heavily in educating consumers about LTC financing. Buyers were asked who would pay for LTC expenses in the absence of insurance. Somewhat surprisingly, private market buyers were most likely to understand that the liability would fall on their shoulders. A smaller percentage of FLTCIP and other public program buyers believed that they would have to pay for LTC in the absence of their policy; they were more likely to believe that other insurance or other government programs would pay for the care. As well, many were unsure about how such costs would be paid (in the absence of their insurance).

Figure 4 displays similar results for non-buyers across each of the market segments. As shown, FLTCIP non-buyers are much more likely to have engaged in retirement planning than other public program non-buyers. They are, however, less concerned about paying for LTC. This may be explained in part by the fact that they are also more likely to believe that other insurance or government programs will pay for LTC if it is needed. Also, private program non-buyers are much more likely to be concerned about paying for LTC; they have a better understanding that the liability would be theirs and would not be covered by other programs or insurance.

Figure 4: Attitudes about Retirement Planning among Non-Buyers by Market Segment

Source: Analysis of data from the FLTCIP, 2003; America's Health Insurance Plans, 2000; MetLife, 2001; MedAmerica, 2000.

When comparing buyers and non-buyers across the market segments, a fairly consistent pattern emerges. Buyers are more likely to have done retirement planning, are more confident that they will have adequate resources to enjoy their retirement, have given more thought to paying for LTC, and are more likely to understand that without private insurance, the LTC liability will fall on their shoulders.

C. The Purchase Process

Prior research has shown that most individuals who purchase LTC insurance consult with others before doing so. This is also true of buyers across these three market segments. Buyers of the FLTCIP were, however, more likely to have consulted with a financial planner, work colleague, and children than were buyers in either of the other two market segments.

Non-buyers in the FLTCIP and public program samples were asked how likely they thought it was that they would buy insurance when they requested information about their respective programs. A significant proportion in both groups -- 70% of FLTCIP non-buyers and 80% of public program non-buyers -- thought that they would buy a policy. Obviously, something along the way changed their mind or their initial purchase commitment was weak. When asked about the application process itself, similar proportions of both market segments -- roughly 25% -- indicated that they found the application difficult to understand. This may explain in part, why they did not proceed to buy a policy. Also, as shown below in Figure 5, for the most part, non-buyers in each of the two market segments were less likely to have actively engaged in activities designed to educate and reinforce the need for insurance protection against the cost of LTC.

Figure 5: Exposure to Promotional Activities by Market Segment and Purchase Status

Source: Analysis of data from the FLTCIP, 2003; America's Health Insurance Plans, 2000; MetLife, 2001; MedAmerica, 2000.

D. Motivations Behind the Purchase and Non-Purchase Decision by Market Segment

We have already demonstrated that there are a number of socio-demographic and attitudinal differences among buyers across each of the market segments and among non-buyers in the different segments. Figure 6 below highlights the single most important reason why buyers in each of the market segments chose to purchase a policy. As shown there are significant differences across market segments. Among FLTCIP buyers, assuring that care is affordable when needed is the most important purchase motivation. Among buyers of public programs, being able to avoid having to rely on relatives for care is the most important reason for having a policy. Finally, the most important purchase reason for private market buyers is to avoid having to use family resources to pay for care.

Figure 6: Single Most Important Reason for Buying a Policy by Market Segment

Source: Analysis of data from the FLTCIP, 2003; America's Health Insurance Plans, 2000; MetLife, 2001; MedAmerica, 2000.

An important point worth noting is that there is less variation in purchase reasons for FLTCIP and public program buyers compared to buyers in the private market. This suggests that the targeted marketing and education campaigns that accompany public program rollouts do focus the attention of buyers on a number of key points regarding the value of the insurance.

Figure 7 below shows the reasons cited by non-buyers as relevant to their decision not to buy a policy. As shown, across each market segment, cost remains the largest barrier to purchase. Between 48% and 72% of respondents cited this as a reason for non-purchase. Roughly one-in-six FLTCIP non-buyers and one-in-four public program non-buyers believe that they do not need the insurance because Medicare or Medicaid will pay. In contrast, the overwhelming majority of non-buyers from public programs do not have this belief: almost none of them believe that the presence of Medicaid or Medicare is a sufficient reason not to buy the insurance.

Figure 7: Reasons for Not Buying a Policy by Market Segment

Source: Analysis of data from the FLTCIP, 2003; America's Health Insurance Plans, 2000; MetLife, 2001; MedAmerica, 2000.

An interesting finding is that roughly equal proportions of non-buyers across each of these market segments indicate that they are planning to buy the insurance at a later time. Clearly, these "first-time" non-buyers represent a future marketing opportunity. A marketing campaign designed to stress the value of a policy relative to its cost as well as the advantages of purchasing at younger ages, may be particularly effective at "turning" these reluctant potential buyers into actual purchasers.

V. CONCLUSIONS

For the most part, the differences between buyers and non-buyers across each of the market segments are those one would expect. On the other hand, not all "buyers" are the same and neither are all "non-buyers". There are differences in attitudes, socio-demographic characteristics and decision-making that are a function of market segment. Such differences underscore the importance of a highly targeted marketing campaign with a discrete number of messages about LTC, insurance and retirement planning.

NOTES

1. The Appendix also summarizes information about the retiree sample, of which there are an additional 5,000 respondents.

APPENDIX

Notes for Tables

Unless otherwise indicated, the analysis of the data is based on the responses of 642 active buyers, 575 active non-buyers, 1114 retired buyers, and 586 retired non-buyers from the FLTCIP; 501 active buyers, 164 active non-buyers, 1841 retired buyers, and 360 retired non-buyers from employer group plans; 232 active buyers from North Carolina State Teachers; 198 active buyers, 102 active non-buyers, 162 retired buyers, and 138 retired non-buyers from the California Public Employees Retirement System (CALPERS); 504 active buyers and 326 active non-buyers from the State of Minnesota public employees, and 127 active buyers, 334 active non-buyers, 63 retired buyers, and 279 retired non-buyers from the State of Michigan public employees. It should be noted that not all of these interviewees have responded to all of the questions that we have presented here.

All significance tests are based on 5% level or better. Notations for significance are as follows: If one category out of three contains the symbol (*), then the category starred is statistically different from each of the other two categories, but the non-starred categories are not different from each other. If two categories out of the three contain the symbol (*), then those two categories are statistically different from each other, but each of those categories is not statistically different from the third one. If all three categories contain the symbol (*), then all three are statistically different from each other.

Unless otherwise specified, only the response category that has a notation of significance was tested against all other categories. In some cases, it was determined that a combination of categories would be tested. These are indicated in the footnotes. It also may be the case that if categories were or were not combined, it could change the results of the test of significance.

Unless otherwise indicated, the first response category (i.e., strongly agree, very important, very likely, etc.) or the yes response was tested. Therefore, if there are no notations for significance, the test was not significant at the 5% level.

A total of nine Data Briefs are available from the Office of Disability, Aging and Long-Term Care on this subject:

• A Comparison of Demographic and Attitudinal Characteristics Among Active and Retired Buyers, Non-Buyers and Non-Responders to the Federal Long-Term Care Insurance Program [http://aspe.hhs.gov/daltcp/reports/charcom.htm] Posted June 2005
• A Comparative Analysis of the Socio-Demographic and Attitudinal Characteristics of Active Buyers and Non-Buyers of Long-Term Care Insurance in the Federal, Private and Public Sectors [http://aspe.hhs.gov/daltcp/reports/LTCIchar.htm] Posted February 2006
• A Demographic and Attitudinal Profile of Buyers of the Federal Long-Term Care Insurance Program [http://aspe.hhs.gov/daltcp/reports/buyprof.htm] Posted June 2005
• A Demographic and Attitudinal Profile of Non-Buyers of the Federal Long-Term Care Insurance Program [http://aspe.hhs.gov/daltcp/reports/nonbuyprof.htm] Posted September 2005
• A Demographic and Attitudinal Profile of Non-Responders of the Federal Long-Term Care Insurance Program [http://aspe.hhs.gov/daltcp/reports/nonresprof.htm] Posted September 2005
• Does Geographic Location Make a Difference? A Comparative Analysis of the Socio-Demographic and Attitudinal Characteristics of Active Buyers and Non-Buyers of the Federal Long-Term Care Insurance Program [http://aspe.hhs.gov/daltcp/reports/FLTCIloc.htm] Posted February 2006
• Marketing Activities: A Comparative Analysis of Engagement and Participation Among Buyers, Non-Buyers and Non-Responders of the Federal Long-Term Care Insurance Program [http://aspe.hhs.gov/daltcp/reports/markact.htm] Posted July 2005
• Multivariate Analysis of Buyers and Non-Buyers of the Federal Long-Term Care Insurance Program [http://aspe.hhs.gov/daltcp/reports/FLTCIanal.htm] Posted September 2005
• What We Know About Buyers and Non-Buyers of Private Long-Term Care Insurance: A Review of Studies [http://aspe.hhs.gov/daltcp/reports/LTCIlr.htm] Posted September 2005