Long-term care insurance has long been a staple of employee benefit offerings. While not typically a “headline-grabbing” benefit, these plans have received increased attention. What is a long-term care insurance plan? How commonly are these plans offered? Why is this topic trending in the first place? Let’s explore!
Long-Term Care 101
Long-term care (LTC) insurance covers costs associated with the care provided at home or in a residential facility for persons who are unable to care for themselves as a result of a chronic illness, disability or mental impairment over a long time period. This insurance is available to some workers as an employee benefit and is most frequently purchased as an individual policy. Long-term care insurance has realized an increased line of business with the aging of the Baby Boomer generation. Approximately 8 million people in the United States have insurance with a long-term care option.
What does an employer-sponsored long-term care plan look like?
Statistics from the International Foundation’s most recent Employee Benefits Survey explore the most common attributes of long-term care insurance plans.
- Long-term care insurance is offered by five in eight (62.5%) responding organizations, although offered more commonly amongst our corporate (89.4%) and public employer (76.7%) plan respondents.
- More than one in three (36.4%) organizations that offer LTC benefits do not require a service period for eligibility, followed by 20.2% that have a waiting period one month or less. Similarly, 43.5% have a six-month elimination/waiting period for benefits, followed by three months (31.9%).
- The benefits in these programs are typically calculated as a fixed percentage of wages (82.7%), most often 60% of worker earnings (65.0%).
- Three in four (74.9%) organizations that offer LTD benefits do so until the age of 65 (or retirement age).
- Respondents continue a variety of benefits during disability leave, including health care coverage (66.4%), life insurance (52.5%), pension plan accruals (21.7%), employer DC plan contributions (14.9%) and even vacation benefits accrual (13.9%).
- More than four in five (81.1%) responding organizations fully insure their long-term care benefits.
[Related: Employee Benefits Producer Training Program]
Why is long-term care insurance in the news?
In January 2018, it was announced that General Electric had a surprise $15 billion funding shortfall in their accounting statements, driven primarily by miscalculations in their long-term care insurance policies.
How did this happen?
This significant shortfall was due to a number of actuarial miscalculations and environmental factors, including:
- Low interest rates—Insurance companies assumed higher rates of return on their invested capital in these programs, which did not come to fruition.
- Increasing medical costs—Health care costs continue to outpace inflation at an alarming rate.
- Increased life expectancy—Increasing life expectancies extend care (and their costs) over longer time periods.
- Policy lapse—Insurance companies assumed that about 5% of policyholders would allow their plans to expire, a significant miscalculation.
- Ability to increase premiums—Unlike other insurance products, in many cases, companies are not able to raise premiums on existing customers without approval from state insurance departments.
It should be noted that these challenges are not unique to the General Electric offerings but could be indicative of the industry as a whole.
Where do we go from here?
Analysts are predicting that the GE example is only the first shoe to drop. Today, annual expenditures of long-term care exceed $225 billion. By 2050, the U.S. will have approximately 90 million people aged 65 or over, making it an unprecedented challenge for the future. Will a new marketplace option emerge, or will government intervention be explored? Stay tuned!
Justin Held, CEBS
Senior Research Analyst at the International Foundation
Scott A. Olson
Claims for long-term care insurance policyholders have priority over stockholder profits. GE stockholders may not be happy, but GE LTC ins. policyholders are. Long-term care insurance is great for policyholders, not-so-great for stockholders.
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