CARE FOR THE LONG TERM.

With boomers blossoming and life spans lengthening, planning for long-term care coverage assumes increasing importance.

As BABY BOOMERS BEGIN TO ENTER their retirement years, and as life spans continue to lengthen, a fast-rising number of Americans are staring in the face the challenge of providing for long-term care. Based on statistics from the U.S. Census, in 30 years, 70 million elderly Americans--more than twice today's population of seniors--are likely to have some long-term care needs. And long-term care needs aren't exclusive to senior citizens. According to a U.S. General Accounting Office study, 40 percent of those who need long-term care are age 18-64. Long-term care needs can include ongoing nursing; social, rehabilitative, or personal care; and services provided in a nursing home, the individual's home, or alternative sites such as assisted living facilities. Paying for these needs is near the top of many individuals' and policymakers' agendas, as well as a matter of great concern among many employers.

Medicare does not provide coverage for long-term care. And Medicaid covers only those people who have depleted most of their assets and have very low incomes. Moreover, longterm care services are costly. The average cost of a one-year nursing home stay is about $50,000 and growing, according to research by the Health Insurance Association of America (HIAA). Given competing demands on public dollars, government programs alone are not likely to meet the nation's growing long-term care needs. Hence, a viable option for meeting America's long-term care needs is via the private sector, through the purchase of long-term care insurance policies that offer choice and affordability.

The effect on employers

Growing long-term care needs affect employers, because many workers belong to the "sandwich generation," people who must take care of elderly parents and young children. The high levels of stress and anxiety this burden creates take a major toll in the workplace: A national study by AARP (formerly the American Association of Retired Persons), Washington, D.C., found that 40 percent of working caregivers are absent from work regularly, one third leave work early, and 14 percent have reduced their regular work hours. However, long-term care insurance can help provide a flexible and affordable way to cover the costs of the services that an older person may need, while easing the burden that caregiving places on stressed workers, according to a study by the MetLife Mature Market Institute, Westport, Connecticut. The results show that people caring for disabled elders with long-term care insurance are nearly twice as likely to stay in the workforce as those caring for individuals without the insurance.

Political progress

Policymakers, too, are encouraging consumers to protect themselves. Tax incentives provided by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) allow employers to deduct the cost of setting up long-term care insurance plans as well as employer premium contributions. In addition, employees' long-term care insurance benefits are not taxable income, and workers can also deduct their premium payments to the extent that their total medical expenses exceed 7.5 percent of adjusted gross income.

The HIPAA tax incentives have helped increase the number of employers adding the insurance to their traditional major medical offerings. Today, more than 3,000 employers offer a long-term care insurance plan to their employees and retirees. Also encouraging was legislation passed last year authorizing the federal government to offer private long-term care coverage to federal workers and retirees and members and retirees of the armed services. The federal program is currently in development and is expected to help millions of Americans protect themselves against the often-catastrophic costs of long-term care.

Today's landscape

Even with the progress made to date, many more millions of Americans are not prepared for long-term care needs. And while the number of individuals purchasing long-term care policies has increased, HIAA considers private-sector employer plans an especially promising outlet, since they have the capacity to reach a large number of people during their working years, when premiums are more affordable.

A recent study of the employer group market by HIAA, and conducted by LifePlans, Inc., Waltham, Massachusetts, demonstrates that now is a good time for employers and employees to consider long-term care coverage as part of employee benefits. And another recent study of employees enrolled in employer-sponsored long-term care insurance plans showed that the vast majority of surveyed workers do not believe that the government will pay for most of the costs of long-term care. And when asked what single most important action the government should take in the area of long-term care, the most common action cited was full tax deductibility for the purchase of private insurance.

The study also revealed the following:

* Buying long-term care insurance provides psychological benefits to employees enrolled in the plans. Almost all respondents said that having the insurance made them feel more secure about their future, and that they believed they had taken appropriate steps to take care of their spouses and children.

* One in four employees said that protecting their assets or leaving an estate is the most important reason for enrolling in the long-term care insurance plan. About one in five said that preserving financial independence and guaranteeing the affordability of needed services are the most important reasons for enrolling.

* Employers play a key role in employees deciding to enroll in their long-term care plan. The majority of employees (82%) said that the fact that their employer added the insurance coverage to their employee benefits options was an important reason for their enrollment.

A separate HIAA--Lifeplans study of the individual long-term care insurance market also showed that Americans are buying the insurance at a younger age. While the average age of buyers has declined from 69 in 1995 to 67 in 2000, the greatest change is in the proportion of those under age 65 who are purchasing the product. One in three buyers today is under 65, compared to one in five in 1995. Also, buyers continue to be predominantly of middle income. More than half (58%) of all buyers have annual incomes of less than $50,000, and their median income is $42,500.

Recognizing the growing demand for long-term care planning, HIAA has joined with AARP, ASAE Services, Inc., and other organizations to urge Congress to pass proposed bipartisan legislation that would make long-term care insurance more accessible and affordable for millions of Americans. Working with HIAA and AARP, Sens. Charles Grassley (R-IA) and Bob Graham (D-FL) and Reps. Nancy Johnson (R-CT), Earl Pomeroy (D-ND), and Karen Thurman (D-FL) have proposed legislation that would establish a 100 percent above-the-line federal income tax deduction for long-term care insurance premiums and phase in a federal income tax credit of up to $3,000 for individuals with long-term care needs or their caregivers. It would also make the insurance coverage more accessible by permitting employers to include such coverage under cafeteria plans and flexible spending arrangements. These proposals have key bipartisan and bicameral support, including more than 130 co-sponsors in the House, and are supported by President Bush. Thi s tax relief would obviously help those people with long-term care needs and their caregivers--and it could be a godsend to someone struggling with a dual role as breadwinner and family caregiver.

Coverage essentials

In the meantime, if you're an employer who is considering providing long-term care coverage as an employee benefit or a worker weighing a policy, what are some of the features that you should consider when weighing plans? Whether you're planning for yourself or your organization, generally look for policies that meet the requirements of the National Association of Insurance Commissioners' Model Act and Regulation, and include the following:

* at least one year of nursing home or home health care coverage, including intermediate and custodial care;

* coverage for services required because of a chronic illness, such as Alzheimer's disease, should the policyholder develop it after purchasing the policy;

* an inflation protection option;

* an outline of coverage that systematically describes the policy's benefits, limitations, and exclusions, and allows you to compare it with others;

* a guarantee that the policy cannot be cancelled, nonrenewed, or otherwise terminated due to advancing age or deterioration in health;

* a pre-existing condition limitation of fewer than six months;

* an optional non forfeiture benefit; and

* the right to return the policy within 30 days after purchase and to receive a premium refund.

Make sure that the policy does not require that policyholders

* first be hospitalized in order to receive nursing home benefits or home health care benefits;

* first receive skilled nursing home care before receiving intermediate or custodial nursing care; or

* first receive nursing home care before receiving benefits for home health care.

Remember, insurance policies are legal contracts. Read and compare the policies you are considering before you buy one, and make sure you understand all of the provisions. Marketing or sales literature is no substitute for the actual policy. Also, ask for the insurance company's financial rating and for a summary of each policy's benefits or an outline of coverage. Good agents and good insurance companies want you to know what you are buying.

Winthrop Cashdollar is the director of the Center for Disability and Long-Term Care Insurance at the Health Insurance Association of America, Washington, D.C.