The first step in designing and implementing a group
LTC plan is assessing and understanding the need for such coverage.
Management and employees must become more educated about the rising
cost of LTC, the limitations of government and other sources of assistance,
and the direct and hidden costs of not having coverage. Personal experience,
such as when an employee is confronted with caring for an elderly
family member, provides the most dramatic evidence. Once all levels
of the workforce are more aware of the issues involved in LTC, an
analysis of the real potential interest in an LTC plan can be performed.
This may be done through surveys or focus groups. In addition, what
competitors are doing about LTC should be determined. This information
will allow an organization to determine whether to implement an LTC
insurance plan. Employee education is crucial in generating interest
in an LTC insurance program, and support from top management for a
new LTC plan is also critical for the success of the program.
Enrollment procedure. A plan with
a simple enrollment procedure will often make it easier for employees
to make the decision to take part. On the other hand, a more complex
offering with a variety of options may encourage participation by
letting employees choose a program that more closely meets their particular
needs. When designing an LTC plan, it is important to strike the proper
balance between these competing needs.
Selecting an insurer. Because LTC
coverage may not be needed until many years in the future, it is important
to select an insurer that is experienced in the long-term care area,
financially stable, and likely to be around when benefits are needed.
Almost all LTC plans are currently paid for fully by
employees. This results in relatively low participation rates. In
addition, the employees who are most likely to participate are those
who anticipate needing benefits. This phenomenon is known as “adverse
selection.” The claims experience of a group where adverse selection
influences who participates will be worse than would be expected from
an “average” group of employees, and premiums will inevitably increase.
Increased premiums will aggravate adverse selection leading to still
higher premiums. Employer contributions are the easiest solution to
adverse selection. Initially, however, most employers have been very
cautious about becoming involved with funding LTC insurance plans.
As employees become more educated about the need for LTC coverage,
employer contributions will have a bigger impact and should be considered.
Most LTC plans cover nursing home care, home health care,
and adult daycare. Degrees of care include skilled care provided 24
hours per day by a registered nurse under a physician's supervision,
intermediate care (similar to skilled care but provided for shorter
periods rather than all the time), and custodial care that involves
assistance with eating, bathing, dressing, and similar activities.
Although home health care is less expensive than nursing
home care, inclusion of such coverage may result in increased premiums
because insured individuals are more likely to substitute paid home
health care for informal unpaid care by family members when insurance
is available. This happens because most individuals prefer staying
at home rather than entering a nursing home. As a result, if home
health coverage is not provided, no benefit claim will be made. Covering
home health care may encourage lower-risk individuals to participate,
which should reduce adverse selection.
An optional benefit in LTC plans is respite care that
provides care for an individual to relieve, for a period of time,
the burden on family members. Respite care benefit levels are usually
expressed as a percentage of the nursing home benefit.
Note: Plans that cover skilled
nursing and home care generally have higher participation rates than
plans without those benefits.
LTC plans will generally provide a maximum daily benefit
for nursing home care and other services, a maximum duration for benefit
payments, and an elimination period that must expire before benefits
will be paid. Elimination periods that are based on calendar days
as opposed to days of service are a more attractive feature, especially
for home care and adult daycare benefits. Plans may also provide that
daily benefits and benefit maximums be indexed against inflation.
Employers can specify one or more of these design features to simplify
what employees must decide before enrolling. Plans may either reimburse
for services or provide a per diem benefit. The varying needs of employees
may be accommodated by leaving the extent of certain coverage up to
Practice tip: A longer elimination
period (such as 90 days as opposed to 30 or 60 days) will result in
lower premiums and may encourage younger employees to participate
and result in lower premiums in the long run.
Plans generally cover the employee and spouse, but may
also cover parents, parents-in-law, children, and even grandparents
up to a maximum age limit. Employers may decide to give employees
the option of covering parents and in-laws only when they elect employee
and spouse coverage. This is an excellent way to get younger employees
to take interest and enroll in a LTC plan.
Because LTC is a tough sell, communication is crucial
to a successful program. While many employers that offer LTC have
done a good job communicating with their employees when an LTC program
is first offered, experience has shown that this is not enough. For
example, one large company rolled out an LTC plan with great fanfare
and got a modest initial enrollment. But five years later, the enrollment
figures had not changed. It will take a persistent communication plan
plus time for employees to both understand their own need for LTC
coverage and to make the decision to buy coverage.