Behind the enthusiasm of
policymakers for long-term care (LTC) insurance is the
belief that increased ownership of private LTC insurance
will reduce the government's future liability for
financing the nation's LTC needs, currently projected by
the Congressional Budget Office to increase by 2.6
percent annually between 2000 and 2040. Some observers
say that sustained economic growth could keep these
increased expenditures at the same share of total GDP;
others argue that current federal expenditure trends will
become unsustainable without large tax increases.
The potential of the
employer-sponsored group LTC market to stave off a
national LTC financing crisis has recently started to
receive popular notice in the news media. However, for
the potential of the group LTC market to be realized,
there must be widespread employer sponsorship of group
LTC plans and significant participation levels among
eligible employees in these plans.
The present analysis of industry
data estimates the LTC plan sponsorship rate for all U.S.
employers with 10 or more employees at 0.2 percent. The
sponsorship rate among large employers is significantly
higher (8.7 percent). The greatest growth opportunities
are projected to lie in the smaller employer market,
because it is enormous and virtually untapped.
Nonsponsors cite a variety of
barriers to employer sponsorship of LTC plans. For many
nonsponsors, the most important obstacles are the
intrinsic characteristics of their work forces: employees
are too young, transient, part-time, and/or low-income to
be suitable for LTC insurance. For many others, lack of
awareness and low priority are the primary obstacles.
Because group LTC insurance has been widely available for
only 10 years, many benefits managers view it as
“too new and untested.”
Prior to the passage of the Health
Insurance Portability and Accountability Act (HIPAA), in
August 1996, the tax treatment of long-term care
insurance premiums was unclear because Congress had not
addressed the issue and the Internal Revenue Service had
not issued clear guidance. In essence, HIPAA served to
clarify the tax status of LTC insurance and establish
product criteria for tax qualification.
The interventions contained in
HIPAA appear to have been insufficient to stimulate
coverage growth rates that will meaningfully reduce the
future burden on government financing of LTC.
Although employment-based LTC
insurance appears to be the best mechanism for mass
expansion of coverage at affordable rates, the data
suggest that employer sponsorship of LTC plans is
relatively rare, especially among smaller employers, and
that sponsorship rates may not dramatically increase
without significant investments in employer education and
new incentives.
