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Looking ahead to long-term care.

LIKE OSCAR WILDE'S picture of Dorian Gray, the U.S. popuIation is aging at an alarming pace. According to the U.S. Census Bureau, the number of persons age 65 and over doubled between 1950 and 1980, and will double again by 2030. The fastest growing segment of the U.S. population is those age 85 and over: The Department of Health and Human Services reports that this age group is growing three to four times faster than the general population.

Yet while a number of these older people are able to live healthier and more productive lives, many others will require long-term care, whether in nursing homes or their own residences. Presently, statistics show that 40 percent of those over age 65 will spend time in a nursing home, at an average cost of $30,000 per person per year. "The financial burden of caring for the elderly is greater than ever before and has become a bottom line issue for the business community," said Stan Lundine, lieutenant governor of the state of New York at The New York Business Group on Health Inc.'s seminar on Options for Long Term Care Insurance, which discussed the Robert Wood Johnson Foundation's (RWJF) public-private partnership program for financing long-term care coverage in New York state. "Whether we're talking about a company's retirees or the strain on the pension system, or the issue of employees having to take time off from work in order to attend to the needs of aging relatives, the fact is that long-term care issues are having a great impact on corporations."

To deal with these problems, a number of companies have examined the feasibility of providing long-term care (LTC) insurance as an employee benefit, said Tony Gajda, principal at William M. Mercer Inc. "LTC policies have improved a lot over the last five years," he said. "Although these policies can be expensive, there are now many more carriers and a large range of coverage options."

And although LTC is a relatively new form of coverage - the first plans hit the market in the early 1970s LTC plans are increasing in popularity, said David Potter, vice president of corporate marketing at UNUM Life Insurance Company of America. "Studies indicate that sales of longterm policies will double this year compared to 1992," he said. "The group market is growing because long-term care is now seen as a viable employee benefit." As a result, risk managers may find that LTC policies will provide a popular benefit for their employees. However, due to the newness of these policies, careful shopping is advised - which means closely examining the various plans on the market to find those that best meet the needs of the employee group.

The Medicaid Option

THE GROWING INTEREST in LTC policies is due to the steady increase in long-term care costs, said Mr. Lundine. However, Medicare and Medigap are inadequate for financing this care. "Many mistakenly believe that Medicare pays for long-term care, but it only pays for about 2 percent of these costs," said Mr. Lundine. In fact, Medicare covers only certain types of skilled nursing care and does not pay for custodial or nursing homecare at all, noted Mildred Shapiro, associate commissioner of New York State's Department of Social Services.

Traditionally, this situation has left middle income individuals in a dilemma. "Since there was little LTC coverage on the market and Medicare doesn't cover long-term care costs, many middle income people have turned to Medicaid - which does pay for long-term care by default," said Ms. Shapiro. Individuals can get on Medicaid in either one of two ways, she explained. "The first option for the elderly is to pursue 'voluntary impoverishment' which means spending their assets for nursing or home care until they become bankrupt," she said. "The second alternative allows individuals to retain their assets by transferring them to their children or placing them in an irrevocable trust." However, Ms. Shapiro added that even with this option, the elderly will still lose control over their assets. "When someone transfers their assets to their children, they are then in the children's names - and theirs to do with as they wish," she said. "And when someone puts their assets in a trust, they cannot gain access to them." This second option is also depleting funds from the states' already overburdened Medicaid programs, she added.

Taking into account the disadvantages of these options - and the fact that LTC policies have improved New York state developed the RWJF plan to provide an incentive for the purchase of LTC coverage, said Ms. Shapiro. "The RWJF plan is a publicprivate partnership that allows people to protect their assets if they or their companies purchase an insurance policy approved by the state insurance department," she said. "When the benefits in the policy are exhausted, the person then applies for Medicaid and contributes some income to it." Other states are also examining the RWJF approach.

Long-Term Policies

ALTHOUGH THE RWJF program is a "step in the right direction," it is not a panacea, declared Stephen Moses, director of research at LTC Inc. in Kirkland, Washington. "Although the RWJF program attempts to provide an incentive for people to purchase LTC policies, why should a person buy one if they can still get on Medicaid for free?" he said. "The only real change would occur if the loopholes that allow wealthy and middleincome individuals to get onto Medicaid are closed." Mr. Moses noted that the Clinton administration's budget contains a proposal for closing these loopholes, and that some states are considering similar measures. If the loopholes were to be terminated, "the long-term care policy market would explode," he said.

However, other observers say LTC coverage itself could become irrelevant if the federal government enacted a federally funded program for financing long-term care. Yet, the ultimate passage of such an enormous tax-funded program is unlikely, said Mr. Moses. "A public program for custodial long-term care would cost at least $43 billion annually," he said.

Risk managers should therefore keep an eye on these developments while attempting to determine if their employees have an interest in LTC plans. "LTC policies can provide care that is higher in quality than that provided by Medicaid," said Mr. Moses. "Besides, access to Medicaid is getting tight; some people receiving care through it have to wait for nursing home placement."

For the risk manager who determines that employees have a high interest in these plans, the first step is to conduct an affordability analysis, said Mr. Gajda. "It's important to determine if this type of coverage is affordable for the company and its employees." If LTC coverage is a feasible benefit option, Mr. Potter recommends contacting a broker and working on a risk financing proposal. "The company needs to answer a number of questions, such as who will pay for the policy, and to determine the strength of the various carriers," he said. "Risk managers should carefully analyze the different products to ensure they meet employees' needs."

Although the quality of LTC plans varies widely, most policies have improved greatly over the last few years, due in part to better actuarial data, said Mr. Potter. "In the past, policies contained a lot of exclusions, such as for Alzheimer's disease and other 'cognitive impairment' disorders," he said. "But many policies now cover these illnesses."

Risk managers should also look for plans that contain other types of coverage, said Mr. Potter. "Some policies require the elderly to spend their own money first before they can receive reimbursement from the insurer," he said. He suggested looking for a policy that begins to pay benefits when the elderly person can no longer perform a specific number of "activities of daily living" (ADLs) such as eating, toileting, bathing and "transferring" (having the ability to move around). "This type of policy will pay the benefits once the person loses some of these ADL functions."

Also important are skilled nursing and home care benefits. "Some policies cover only nursing home care, but a great deal of long-term care takes place in the home," Mr. Potter said. Other benefits to look for include inflation protection, a guaranteed renewable, which prevents the insurer from canceling the policy, and the option to upgrade the current coverage, added Mr. Moses.
COPYRIGHT 1993 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:long-term care insurance is growing in popularity
Author:Christine, Brian
Publication:Risk Management
Date:Jun 1, 1993
Words:1376
Previous Article:Risks in the chemical and pharmaceutical industries.
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