New Long-Term Care Insurance Product Designs Needed

The prospect of not having enough money to pay for long-term care (LTC) services is a looming crisis for many Americans, particularly those approaching retirement who lack LTC insurance, researchers warned in a newly published white paper for insurers, "Long-Term Care Coverage Designed for Employers."

According to the report, written by Jonathan Shreve and Jill Van Den Bos of Milliman Consultants and Actuaries, the group LTC insurance market is growing, but sales of LTC insurance policies are still far from adequate to meet the anticipated requirements of the growing population of elderly Americans. The paper recommended that insurers design new long-term care insurance products to help employers improve employee participation rates in group LTC plans.

"The long-term care financial crisis has been creeping up on Americans for years," said Shreve. He noted that, since the passage of the Health Insurance Portability and Accountability Act (HIPAA) in 1996, which defined how long-term care coverage can be offered as a tax-preferred benefit, an increasing number of employers are offering long-term care insurance through payroll deduction.

However, Shreve warned, "these ‘convenience’ benefits are not consistent with safety net provision goals of the employer due to low participation rates among eligible employees." He added that employers are often unwilling to contribute to these plans because of the high costs involved.

To address these problems, Shreve and Van Den Bos concluded, there is a need for new product designs that encourage employee participation, while keeping employer costs reasonably low. One option discussed in the paper is the use of vesting and waiting periods for LTC insurance, which would reward long-term employees, while reducing costs for employers. The researchers also offer suggestions on how insurers can take advantage of recent tax rulings to offer alternate funding approaches for LTC insurance.