Coming of age
New legislation and employer-sponsored long term care present opportunities for agents
It’s the fear they don’t want to face.
Most consumers realize that long term care in a nursing home or specialized home care could be the most expensive need of their lives. Baby Boom children of ailing parents already know that nursing homes could cost $100 a day or more.
But the prospect of funding those costs with long term care insurance is hard to face-unless you have had to grapple with the problem or know someone who has, says Walt Szadzinski, president of Szadzinski & Associates, an independent agent and broker in Elmhurst, Illinois.
Szadzinski, a 30-year veteran of life and disability insurance sales, says that long term care coverage should be one of the fastest growing products-based on need. But many individuals deny the need when they confront the decision of buying long term care insurance.
“It’s a question of contact. If an individual has had some experience with the high cost of long term care because of a parent or a relative, they are open to the concept of long term care insurance,” Szadzinski says. “If not, they are a very hard sell. Unless they have directly come into contact with the problem of paying for long term care, they think it won’t ever touch them.
“I think there is a lot of revenue to be gained from long term care insurance sales, but to build a business you have to do a lot of consumer education about the need and the products,” he continues.
Szadzinski and his four employees represent two of the largest long term care insurance providers, CNA Long– Term Care underwritten by Continental Casualty Company and Valley Forge Life Insurance Co. in Chicago, and UNUMProvident in Portland, Maine, with coverage underwritten by Unum Life Insurance Co.
While the long term care insurance products offer a sound way of funding the key costs involved in long term care, they can be difficult to communicate. Most consumers simply don’t understand how the coverage works or the unique triggers that initiate such coverage.
Unlike health care coverage, long term care insurance does not indemnify policyholders for costs on a claims basis. Instead, most policies provide for coverage only after a policyholder reaches a stage of disability that calls for some sort of specialized long term care. The level of disability is measured by an inability to perform two or more of Activities of Daily Living, defined as:
* Bathing by tub, shower or sponge bath
* Dressing, including clothes and any braces, fastening or artificial limbs
* Toileting and associated personal hygiene
* Transferring from bed chair or wheelchair
* Continence, the ability to control bowel or bladder functions
*Eating, using normal utensils, tubes or intravenous devices
Coverage can also be triggered by cognitive impairment that requires an individual to have specialized supervision.
When these triggers occur, long term care insurance pays a flat monthly benefit chosen by the policyholder. The benefit may be less for home care.
Some long term care insurance policies receive favorable tax treatment under the Health Insurance Portability and Accountability Act (HIPAA) of 1996. Long term care insurance premiums can be deducted as part of health expenses if they meet the usual adjusted gross income tests, and benefits are not subject to income tax.
However, tax-qualified plans are restrictive, requiring recipients to be chronically ill and subject to a plan of care provided by a licensed health care practitioner. Non tax-qualified plans are less restrictive, subject only to the usual triggers and a waiting period. Claimants are not required to be chronically ill or certified by a licensed health care practitioner.
Jay M. Menario, vice president of long term care at UNUMProvident, says the market for individual long term care insurance continues to grow as the products improve and awareness grows. “Ten years ago, long term care insurance was only for older individuals, approaching retirement. Today, younger individuals are recognizing the value of the coverage as well as the need,” he says.
However, the real growth has been in employer-sponsored coverage-an optional coverage paid completely by employees though payroll deduction although some employers contribute to premiums as an incentive to employees. The coverage costs a bit less than individual coverage, thanks to a better spread of risk in a group model, Menario says.
Employer-sponsored long term care insurance has been growing-in fits and starts. According to a report from LIMRA International in Windsor, Connecticut, the number of individuals covered by employer– sponsored long term care insurance programs increased by 19% in 2000.
By the end of last year, nearly 3,800 employers were offering plans covering more than 1 million employees, the report noted. However, the recent growth comes on the heels of a bad year in 1999 when the number of employer groups declined by 6% and the number of participants fell by 22%.
Szadzinski recently began marketing employer-sponsored group long term care insurance. Employer– sponsored long term care coverage is an attractive product for producers, Szadzinski says, since it can generate large premium volume from a single group contract. But employers are often reluctant to add the coverage to their employee benefit programs.
“There’s a lot of competition for the employee benefit dollar these days and employers are not very willing to discuss adding new benefits,” Szadzinski says. “Health care costs are going way up-20% or more for most employers-and employers don’t have money in their budgets.
“Even though employers don’t have to pay the premiums directly, they perceive the payroll deduction process and other administration as an additional burden they don’t want to accept,” he says.
The long term care policy could become an even better deal and easier to market if Congress gets around to revising tax law. Earlier this year, Rep. Nancy Johnson (R-Conn.) and Rep. Nancy Thurman (D-Fla.) introduced the Long-Term Care and Retirement Security Act that would phase in a 100% tax deduction for private tax-qualified long term care insurance premiums.
The deduction would start at a 50% tax deduction for the first year and increase to 100% in the sixth year of coverage. The phase-in schedule accelerates to four years for individuals over age 60.
The bill would also grant a $1,000 tax credit to individuals receiving long term care or their caregivers and create a national public education campaign to be conducted by the Social Security Administration. The agency will provide consumers with information about long term care and its limitations and tax benefits.
The bill has also been introduced in the Senate but has been mired in the House Ways and Means Committee. It could resurface if the growing problem of long term care continues to gain in profile.
Patricia Ash, LIMRA senior analyst who specializes in long term care, says the bill would initiate a wave of employer sponsorship. “The probable passage of favorable tax treatment will also add impetus to the market. The outlook for long term care is excellent,” she said earlier this year when the LIMRA report was released.
But until the law is passed, insurers and their agents still have a tough case to make to employers. And even after they make their sale of an employer-sponsored plan they need to encourage employers to promote the coverage to employees.
“It’s essential that employers commit to promoting the coverage to employees,” explains Lea Fosz, assistant vice president of long term care coverages at CNA Insurance Companies. He says that in Chicago, “most employers that have generated strong participation from employees host individual and group meetings, and provide brochures and e-mail communication that explain coverage and promote enrollment.”
Agents can take an active role in employer promotion by conducting informational meetings, personalizing communications and assisting with enrollment.
Len Strazewski has been covering employee benefits issues for more than 20 years and is employee benefits editor of Human Resource Executive magazine.
Copyright Rough Notes Co., Inc. Nov 2001
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