Disability & long-term care.

In recent years, long-term-care insurers have been struggling as profit has been less-than-expected, and costs for consumers have risen. Approximately half of the long-term-care policyholders in the United States have coverage with a company that no longer sells long-term-care insurance (A.M. Best 2007 Special Report--Long-Term Care, 5/28/2007).

But the market soon may swing in the other direction: A growing portion of U.S. population that is now reaching retirement and living well beyond that age likely will mean that more long-term-care coverage will be necessary. As individuals and families see the costs of care along with the needed amount continue to rise, some are already asking their employers for long-term-care help as a voluntary employee benefit. In return, some companies, recognizing the strain put on an employee who is also a caregiver for an elderly relative, allow the employee to enroll parents, spouses, children and siblings.

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Employers by law are not required to provide long-term disability coverage, but having it in the benefits fold can create a plan that will better attract and retain employees. When it comes to disabilities, many may immediately think of an injury, but illness is generally a leading cause of long-term disability--and obesity and aging add to its prevalence.

Most employers provide some type of short-term coverage, ranging from just a few days to as much as one year. Five states require employers to provide short-term disability: Hawaii, New Jersey, New York, and Rhode Island mandate most employers provide 26 weeks of coverage. In California, employers are obligated to offer 52 weeks.

Short-Term Disability Insurance

WHAT IT IS: Insurance that helps provide partial income protection when an individual cannot work due to disabilities that are not job related, such as maternity, illness or injury. Workers' compensation is intended for on-the-job accidents.

WHAT IT INCLUDES: Employers usually fund a short-term disability plan. Some companies may pay the entire premium, or they may decide to pay up to a certain amount of coverage. Employers also may require a waiting period, called an elimination period, which is usually eight days for an illness. The employer also may have a waiting period before the employee can use the benefits to its fullest extent.

For example, an employee may receive limited benefits for the first year of employment and additional benefits, such as additional sick or vacation time, around each anniversary of the start date.

Payments, with a set maximum cap, often won't kick in until the employee has exhausted all available sick and/or vacation time, and while they may be comparable to the salary early on, the payments are often reduced after a few weeks. Duration of benefits varies by policy, but six months is typical.

Private short-term insurance is readily available (individual premiums are likely to be more costly), but putting money into a personal fund to be used over a short period of time in an emergency may make better financial sense. If it's never needed, the employee still owns the money.

VALUE TO EMPLOYEES

* Allows employee to take the time to recover from a disabling injury or sickness; ant

* Plans are usually provided by employer.

VALUE TO EMPLOYERS

* Helps employers maintain productivity and a competitive benefits program

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Short-Term
Disability
At a Glance

Percentage of private-industry
workers,
1999-2007

'99   36%
'00   34
'03   37
'04   38
'05   39
'06   37
'07   39

Source: Employee Benefits
Survey, U.S. Bureau of Labor
Statistics.

Note: Table made from bar graph.

Long-Term Disability Insurance

WHAT IT IS: This coverage takes over where short-term disability insurance leaves off, typically six months after the policyholder becomes unable to work. Like short-term disability insurance, long-term policies pay a portion of the individual's predisability monthly pay.

WHAT IT INCLUDES: Long-term plans can be purchased to replace approximately 60% of salary. Some employers allow employees to purchase extra insurance, raising the total to around 80%. Policies have monthly maximum payouts. A typical plan may pay benefits for five to 10 years, or to retirement, with waiting periods--or elimination periods--ranging from 30 days to a year, depending on coverage a short-term disability plan provides.

Policies also can vary in definition of disability. Some differ in how they categorize, among others, mental illness, back injuries, pre-existing conditions or injuries that occur during an activity deemed dangerous.

Most individual policies also have features that allow benefits to keep pace with inflation or salary increases, sometimes with certain rules, like the passing of a physical. Policies can be terminated or changed with little notice by the insurance company. As a result, most policies are sold on a "noncancelable" or a "guaranteed renewable" basis.

Noncancelable means that after a medical exam is taken and the insurer issues the policy, the coverage and premiums cannot be raised. Guaranteed renewable means the insurer cannot cancel the coverage if the premiums are paid. Rates cannot be hiked on an individual basis, but they can be increased on an entire group that has experienced a high number of claims.

A policy may also include a work incentive benefit--allowing the employee to return to work on a limited basis while still receiving their income replacement benefit--or benefits if a spouse becomes disabled.

In addition, a policy can be designated as an "own-occupation" policy. Most policies are "any-occupation," which means the individual must return to work when he or she is capable, even if not in the same capacity as before. An "own-occupation" policy lets the policyholder collect benefits until he or she can resume the previous occupation.

VALUE TO EMPLOYEES

* Allows employee to take the time to recover from a disabling injury or sickness; and

* Plans are usually provided by employer.

VALUE TO EMPLOYERS

* Helps employers maintain a competitive benefits program.

Long-Term
Disability
At a Glance

Percentage of private-industry
workers,
1999-2007

'99   25%
'00   26
'03   28
'04   28
'05   29
'06   29
'07   31

Source: Employee Benefits
Survey, U.S. Bureau of Labor
Statistics.

Note: Table made from bar graph.

Family and Medical Leave Act (FMLA)

WHAT IT IS: A benefit enacted in 1993 that allows qualified employees to have 12 weeks of unpaid, job-protected leave per fiscal year for medical reasons, the birth or adoption of a child, or for the care of a child, spouse or parent who has a serious health condition.

WHAT IT INCLUDES: To be considered eligible, an employee must have completed 52 cumulative weeks of service (doesn't need to be consecutive) and has worked a minimum of 1,250 hours during those 52 weeks immediately prior to the leave.

Under FMLA, leave does not have to be used in one lump sum. A chronic condition may require leave on an intermittent basis. A serious health condition is defined as any period of incapacity requiring absence from work for more than three continuous days with continuing treatment by a health-care provider; continuing treatment by a health-care provider for a chronic health condition; or any period of incapacity connected with inpatient care or overnight stay in a hospital or residential medical-care facility.

In addition to the 12 weeks of leave that is available, FMLA allows health insurance to continue at the same premium as it was when the employee was on the payroll. Upon returning from FMLA leave, most employees must be restored to their original or equivalent position.

DID YOU KNOW?

The Americans with Disabilities Act, a federal mandate passed in 1990, is like FMLA in that it is a job-protection statute. Among the requirements of ADA is that people with disabilities must have equal access to the benefits of employment that are offered to other employees, such as employer-provided health insurance.

Long-Term-Care Insurance

WHAT IS IT: Policies help those who are physically or mentally unable to provide independent care for themselves pay for medical and nonmedical assistance. Disabilities that require long-term care can be caused by accidents, illnesses or age, and generally, care is defined as, but not limited to, in-home health assistance or skilled nursing care in a facility.

WHAT IT INCLUDES: Companies may make long-term-care insurance available as a voluntary benefit. Some companies also make long-term-care coverage available to employees' family members as well. Policies purchased through an employer often are cheaper.

Services may include assistance with activities of daily living, home health care, respite care, care in a nursing home or care in an assisted living facility. Activities of daily living include eating, bathing, toileting, maintaining continence and transferring (from bed to chair and back).

The amount, type and duration of care depend on the policy. In addition to care, some policies may assist with making a home handicap-accessible.

Long-term-care insurance is treated like health insurance for tax purposes. If deductions are itemized, a portion of premiums paid may be deducted to the extent that those premiums plus other medical expenses exceed 7.5% of the individual's adjusted gross income. Most long-term-care policies purchased before 1997 are considered qualified for federal tax purposes. Policies issued or modified after Jan. 1, 1997, must meet federal requirements to be considered tax-qualified.

VALUE TO EMPLOYEES

* A source of funds to pay for assistance not covered by medical insurance; and

* Premiums generally lower if bought at a younger age, or as part of a group policy.

VALUE TO EMPLOYERS

* Policies typically funded solely by employee, although some employers make contributions;

* Policies guard against drop-offs in productivity or increases in absentism of employees acting as caregivers.

* Employers generally can deduct as a business expense the cost of establishing long-term-care policies for employees, in addition to any contribution they make toward premiums.

DID YOU KNOW?

Some of the basic choices that go into the cost of a long-term-care policy include:

* Benefit period: The length of time benefits will be paid. Typical benefit periods run two to 10 years, but individuals can choose a lifetime benefit.

* Maximum daily benefit: The highest amount a policy will pay per day for qualified care. Some policies pay benefits based on a monthly maximum.

* Automatic benefit increase: An optional provision that allows the individual to increase the monthly income payment upward as protection from inflation. The annual premium will also increase at a set rate, usually based on either simple interest or compound interest.

* Care Setting: Where care is given directly affects the cost of a policy. Benefits for daily home care generally are lower than the daily nursing home benefit.

* Elimination Period: Like a deductible on health insurance, this period requires that the individual pays for needed care for a specified number of days before the policy starts to pay the daily benefit. The longer the elimination period is--usually no more than 365 days--the lower the premium.

Long-Term-Care
At a Glance

Percentage of private-industry
workers,
1999-2007

'99    6%
'00    7
'03   11
'04   11
'05   11
'06   12
'07   12

Source: Employee Benefits
Survey, U.S. Bureau of Labor
Statistics.

Note: Table made from bar graph.