Will Employers Respond to Long-Term Care Concerns?

February 6, 2014 (PLANSPONSOR.com) - As the population ages and long-term care is a greater concern for retirement, long-term care insurance may become a more widespread employee benefit offering.

Long-term care insurance companies paid nearly $7.5 billion in claim benefits to 273,000 individuals in 2013, a rise of 13%, the American Association of Long Term Care Insurance reports. According to Jesse Slome, director of the national trade group, historic low interest rates for a long period of time drove the marketplace to its current state. “The vast majority of long-term care insurance is now sold on an individual basis,” Slome tells PLANSPONSOR.

Just one insurer, Genworth, is still focused on the employer-sponsored market to a significant degree, Slome says. Genworth is the provider serving some 270,000 federal government employees as well as employees of CalPERS, the California Public Employees’ Retirement System. Transamerica Life Insurance Company is another provider in the industry.

At the moment, long-term care insurance is not experiencing much growth, Slome says. Over the past two or three years the industry has seen a drop in employer-sponsored use, which used to account for about one-third of the industry. Small and mid-size plans are likelier to offer voluntary plans or plans that are partially employer paid.

Fewer than half the employers (43%) in Aon Hewitt’s database of more than 1,700 employers offer a group purchasing arrangement for employees and spouses to obtain long-term care insurance, according to Rob Austin, director of retirement research for the benefits provider.

“The employer marketplace will again emerge to be of interest to insurers,” Slome predicts. He says an aging population led by the Baby Boomers is seeing the likelihood of an increased life span. In addition, this segment realizes that government programs are not going to address their needs or be an adequate solution.

The need for long-term care for older people is not going to go away, Slome feels.  Because of demographic differences, such as a rise in the percentage of older residents, other countries have already faced it. Japan and Germany, for instance, have instituted a socialized solution to long-term care problems, according to Slome.

“They had to address it because the demographics required it,” he says. “We haven’t hit that point yet. But in 10 years we’ll be looking at it very clearly unless we start letting in a lot of young people to build the next level of those paying into the system as taxpayers to pay for older people, and to provide the care for older people.”

A previous report from the association projected that insurers would likely pay $15 billion in 2023, and $34 billion in long-term care benefit payments in 2033, when today’s 60-year-olds reach their 80s.

It’s not possible to specify the costs of care and of the insurance, Slome says, because there is a range for both. Long-term care insurance is not a universal product that everyone wants and needs. It’s more akin to buying a car. Some people want a more expensive make and model; some are willing to go with a fewer-frills vehicle, he explains.