Steven Lutzky, John Corea, and Lisa Alecxih
The Lewin Group
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 the study, you may visit the DALTCP home page at http://aspe.hhs.gov/daltcp/home.htm 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@osaspe.dhhs.gov.
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; and
The 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); and
Increased ease and comfort of purchase, due to the broker role of the employer and 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. Making group LTC insurance available to federal employees could be a major stimulus for increasing the size of this market.
The Office of the Assistant Secretary for Planning and Evaluation (ASPE) within the Department of Health and Human Services sponsored this study to improve current understanding of employer group LTC insurance. The primary purpose of this research is to inform employers' (including the Federal Government's) decision about how to structure and market a LTC insurance offering to employees.
This final report provides information about current and best 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. Current practices were collected from a random and select sample of employers and best practices were compiled from the select sample (similar to government agencies, innovative, or successful in enrollment) of employers. The random sample survey generated a response rate of 58 percent, which is in line with response rates achieved with other employer surveys. The total sample included 93 employers.
The survey data indicate that, among employers offering the product, the employer market provides greater access to coverage than in the individual market. A majority of employers offered less restrictive underwriting or even guarantee issue policies (i.e., did not require health information) during initial offerings to active full-time 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.
Most of the employers surveyed usually limited the number of benefit choices. For example, a majority offered two to four benefit amount options and a set package rather than allowing the employee to select every option separately. Nearly all employers used a single LTC insurer. These practices simplify the multiplicity of choices generally related to purchasing this product.
Despite the limited choices of benefits, data from a random sample of employers suggest that the benefit features of employer group plans generally resemble the most common individually purchased policies:
Employers offered 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 some type of inflation protection, with about half offering it immediately at a higher initial premium and half offering only the option to upgrade benefit levels in the future (future purchase option). A recommended area for further investigation is whether the higher premiums associated with inflation protection deter employees from upgrading their policies.
Just under half of the surveyed employers offered some type of "non-forfeiture" benefit that would provide the purchaser some level of benefits if he or she lapses (i.e., if coverage is stopped because the individual stops paying premiums). The most common non-forfeiture benefit provided was the "reduced paid up benefit," which provides a reduced benefit amount over the same benefit period as defined in the policy. Reduced paid up benefits are much less likely to offer real protection against the costs associated with needing long-term care than other more expensive non-forfeiture provisions, most notably "shortened benefit period."
Almost as common as the non-forfeiture benefit was "return of premium at death," which was offered by 44 percent of employers. This feature allows a portion of premiums paid to be returned to the insured's estate upon his or her death.
The vast majority of plans (all but two) required the employee to pay the entire premium.
Employee purchase rates varied considerably by employer. While over 40 percent of employers experienced participation rates below 2 percent, 20 percent achieved participation of 10 percent or higher.
More simple policy offerings may be related to higher participation. Companies that offered fewer choices were more likely to have higher enrollment rates.
The survey also revealed that companies considered educating employees about the benefit very important, but also challenging. When asked what they would have improved about their LTC insurance offering, employers (particularly those with low participation rates) most cited education and communication during the initial offering. Insurers corroborated this, and added that employers appeared to have better enrollment rates when senior management was actively involved.
Limitations of Employer-Based Coverage
There are potential limitations of employer-based private coverage, including: (1) insufficient numbers of individuals having any LTC protection when they need it because of low enrollment rates and possibly high lapses (2) insufficient protection for those who do retain their coverage until they need benefits because of a failure to purchase inflation protection (3) a lack of value for individuals who pay substantial premiums and then lapse because of a lack of interest in non-forfeiture benefits, and (4) limitations in policies ability to adapt to changes in the LTC delivery system.
Future Research Recommendations
This study raises questions that could be addressed in future research on employer-based LTC insurance. Studies could examine the types of insurance employees are buying and the rate of lapses, the role employers are playing in managing policies, the potential role of employer coalitions, employee demand for LTC insurance, and the type of employee typically purchasing LTC insurance.