A Golden Years Opportunity

Long-term-care policies may be the next big thing for insurers

Who's going to foot the bill if you wind up in a nursing home in your last years? As Americans live longer, the chances are rising that they will need some form of long-term care late in life. That can mean a crushing financial burden on today's seniors as well as their baby boomer children. Long-term-care (LTC) insurance offers one answer. But relatively few people buy such policies on their own. And only a handful of companies offer coverage as part of their employee benefit packages.

That may be about to change. Both President Clinton and congressional Republicans are offering new incentives to encourage purchase of the policies. Tucked into the Administration's fiscal 2000 budget is a measure for the federal government to offer private LTC insurance to its own employees and their families. And the GOP wants to make LTC premiums fully tax-deductible. Long-term-care insurance "could really take off if the federal government starts to do it," says Paul Fronstin, a health-care expert at the Employee Benefit Research Institute in Washington.

If the proposals become law, they could spark new interest in LTC insurance and perhaps prompt Corporate America to add such policies to the standard panoply of employee benefits. Already, some companies say there's growing interest among employees in long-term care. And they expect more as the nation's 76 million baby boomers edge toward retirement. Soon, "more people will be affected by eldercare issues than by child-care," says Susan Holik, vice-president for human resources at Fannie Mae, the Washington mortgage giant.

The concept of LTC insurance isn't much different from life or most other types of insurance: It insures against the risk of individuals incurring costly custodial care at home or at a nursing facility should they become disabled--either through old age, illness, or accident. Neither Medicare nor supplemental Medigap insurance covers those costs, which run $40,000 a year or more, so families must shoulder the burden themselves. They can turn to Medicaid, but only after they run through their own nest egg.

Not everyone is convinced that private insurance is the right answer. The American Association of Retired Persons argues that at least home care should be covered by Medicare, as are other health-care costs for the elderly. That way, everyone who needs coverage could get it, and the risk pool would be that much larger, thereby lowering costs. Says AARP lobbyist John Rother: "Private insurance is a very inefficient solution."

BIG TARGET. Still, corporate benefits managers expect heightened awareness of LTC insurance as the first boomers hit 55 in two years. That's the age at which people start taking a serious look at retirement and confront issues that will arise in old age, experts say. Age 55 "is the beginning of our target market" for LTC coverage, says Elizabeth Georgakopoulos, head of long-term care at Travelers Insurance. Although the number of LTC policies has jumped fivefold in a decade, only 5 million exist today (chart), vs. 163 million group life insurance policies. An internal estimate by Portland (Me.)-based UNUM Corp., a major provider of LTC insurance, estimates the potential market at $20 billion, vs. barely $1 billion in policies sold so far. "That is an immense marketing opportunity," says Nancy Magee, UNUM's vice-president for long-term care.

The numbers remain small partly because LTC policies are so complex. Also, most individuals buy policies from insurance agents, who do not market them very aggressively. One big reason: The first-year commission on a policy for a 50-year-old may run only $100--not enough to warrant a time-consuming sales process. Insurers would gain a huge marketing advantage if Corporate America jumps into the game, allowing them to sell many policies at once.

Currently, few large employers view LTC as an essential benefit. Some 1,500 employers offered LTC policies in 1996, the last year for which data are available, according to the Health Insurance Association of America, a trade group. By 1998, less than one-third of the largest companies offered plans, according to consultants William M. Mercer Inc.

Few employers pick up any of the cost for an LTC policy. But they do pass along the advantage of group rates to employees (and most employers continue to administer the policies for retirees, so they can retain the price advantage). What's more, simply presenting employees with the option in their benefits enrollment package every year would vastly boost awareness of the concept.

NEEDS TEST. Even when offered the policies, employees so far have been slow to jump at LTC insurance. Merck & Co. has offered the coverage since 1991. But less than 10% of its 18,500 eligible employees have signed on. "People think of it as old-age insurance," says Wendy Miller, Merck's head of benefits research. "They tend to be overinsured in life, yet don't have key elements of income protection, such as long-term care."

Still, benefits managers and insurers say employees are paying more attention. At Fannie Mae, only 15% of 3,800 workers have bought coverage. But "this is something we're starting to hear about from employees," says Holik. Even some younger employees are thinking about LTC, in part because it covers catastrophic injuries as well as the debilities of old age. Jayn Atkins, a business manager at Fannie Mae, is only 38, but she pays $9.47 every two weeks for an LTC policy that will cover up to $130 a day in nursing-home costs for the rest of her life. "If anything happens, at least I know my daily needs will be taken care of," she says.

Sooner than they'd like, boomers are going to have to think hard about how to finance their long-term care needs. The question is whether LTC insurance will be part of the answer for more than a handful.

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