So, you're ready to add long-term care insurance to your corporate benefit plan. That's a wise move, because studies show most workers want this benefit. And given the dwindling state of 401(k) plans right now, it's more in demand than ever. That's because LTCI acts as a "401(k) firewall," protecting those precious retirement funds. Given the current volatility of the stock market, LTCI makes more sense than ever.

However, it's not so easy to choose the right plan. LTCI is a complex product, one that's still developing, and there are many options to weigh. The LTCI industry is complex as well, with carriers still evolving. Choosing the right insurance carrier isn't as straightforward as one might think.

Remember, this is a benefit that employees will most likely own for several decades before actually using. (It doesn't matter if workers retire or leave; LTCI is portable.) As a result, you need to choose a carrier that's going to be there when you need it, as well as benefits that will be meaningful 20 or 30 years down the road.

So, how do you choose the right insurance carrier and LTCI plan? By considering these five essential factors.

1. Choosing the right carrier

When it comes to LTCI, choosing the right carrier is absolutely critical. Be forewarned: Even if your group is highly satisfied with your life or health insurance carrier, it may not be your best choice for LTCI.

Over the last decade or so, the LTCI industry has been in a state of flux. After all, LTCI is still a young product. Up until recently, carriers didn't have much claims experience on which to base underwriting and pricing.

At the moment, there are more than 100 LTCI carriers actively selling the product in one form or another, yet only a few top players consistently dominate the market. These are the carriers who do diligent research, invest in product development, and set the trends. In other words, these are the ones who are committed to LTCI. These are the experts.

How do you recognize the most desirable LTCI carriers? Look for a carrier that...

• Has a deep understanding of LTCI, demonstrated by a solid history
• Is financially strong and stable
• Consistently earns high industry ratings
• Is committed to the future of LTCI-this is key!

If the carrier doesn't meet all these criteria, it can spell major headaches for you later.

For example, consider the plight of the ABC Company, a financial services company with 13,000 employers. When implementing its LTCI plan, ABC picked a familiar carrier. The problem was that this company had already been in and out of the LTCI market. a red flag they chose to overlook.

Not long after ABC conducted their massive enrollment, its carrier announced it was exiting the group LTCI market once again. The carrier said it would retain the insured group members already on the books, but wouldn't accept any new ones.

This created a difficult situation for ABC, while creating a loss of confidence among employees. ABC found itself stuck with an indifferent carrier and a stagnant insured population. As the group ages-without an influx of younger, healthier people enrolling-more claims will be filed, and rates may increase.

In this case, our solution was to implement a new, more reliable LTCI plan for new hires, while giving existing insureds the opportunity to switch to the new plan. Ultimately, more than half the currently covered employees elected to make the switch. In addition, a number of employees who declined the original plan signed up for the new one, which was offered on a guaranteed issue basis.

The crisis was resolved, but now ABC company has to administer two separate plans, which means more work for their HR team, which could have been avoided if they had chosen a more committed carrier.

So how do you sift the wheat from the chaff? Here are four steps to take when shopping for an LTCI carrier:

Learn the carrier's LTCI history

In addition to whether a carrier has ever exited the LTCI market, find out how long the insurer has been writing LTCI, how large its book of business is, how many groups and insureds it covers, and what it's paid in claims. There are three types of plans (individual, multi-life, and true group), which we'll cover later. Once you've determined which plan applies to your group, make sure your carrier excels at your plan type.

Consult the Comdex

I'm sure you're familiar with the various insurance rating services, which measure assets and liabilities, etc., to rate a carrier's financial health. But you may not be familiar with the Comdex Index, which is a valuable, time-saving evaluation tool. Ask your insurance broker to provide you with the current Comdex report.

As the name implies, Comdex is a composite index of four major rating services (A.M. Best, Standard & Poor's, Moody's, and Fitch Ratings). It provides an at-a-glance snapshot of insurance carriers' ratings, assets, reserves, and other key indicators. Comdex isn't a rating system, but a mathematical ranking of carriers based on the existing ratings. In a nutshell, you want a carrier with a Comdex ranking of 80 or above.

Work with experts

Make sure your broker understands LTCI. Because of the specialized nature of this product, many brokers bring in an LTCI specialist to ensure things are handled correctly. This is important if you're offering a voluntary plan, because the plan's success depends on an intensive, hands-on enrollment. The better your employees understand the benefit, the better your participation will be.

Insist on a turnkey program

Finally, make sure your broker and/or specialist can offer you a turnkey program. Many thinly stretched HR departments worry about how they'll handle the additional work of an enrollment. The answer is: they shouldn't have to. Your representative should do the work for you.

How do you establish if this in fact will happen? Ask for a step-by-step summary of the enrollment plan. A good plan will include announcement posters, employee e-mails, letters mailed home, and in-person education/enrollment sessions conducted by the broker/specialist. If you have employees in remote locations, your broker should be prepared to offer webinars as well.

2. Understanding plan types

As previously mentioned, there are two basic group plan types, which are largely determined by group size:

• True Group coverage - for large employers (defined as at least 500 to 1,000 employees, depending on the carrier). A group policy is provided to the employer, and employees receive certificates of coverage.
• Multi-life coverage - for smaller groups and those who want to offer extremely personalized coverage. Some carriers will write Multi-life coverage for groups as small as three lives. While each employee receives an individual policy (which allows for more plan design choices), they all may benefit from group premium discounts and less detailed medical underwriting.

Here's the basic difference: the larger the group, the less intensive the underwriting and, generally, the lower the premiums. In True Group plans, for example, no medical questions are asked; it's essentially guaranteed issue. In Multi-life plans, some "short form" medical questions are asked, but not as many as with individual plans.

Obviously, for very small or very large groups, there isn't much guesswork involved. But if your group falls in between, or if you're looking for something special, ask your broker/specialist for guidance.

Once you determine what plan type applies to you, focus on those carriers who excel at that particular type of plan.

3. Choosing the right plan design(s)

In order to choose the right plan design (or designs, if you're offering more than one), you need to understand the policy components. Here's the basic anatomy of an LTCI plan:

• Daily/Monthly Benefit - the daily benefit (also available as a Monthly Benefit) received for care administered in a nursing facility. While benefits range from $50 to $500 per day, most employers choose a daily benefit of $100 to $300. (To give you a frame of reference, the national average daily cost for a private room in a nursing facility is $213.)

• Home Health Care and Adult Day Care Benefit - Under a True Group plan, this amount is 60% to 75% of whatever nursing facility daily benefit you choose, depending on the carrier. (FYI: the national average rate for a home health aide is $20 an hour; the average rate for adult day care is $64 a day.)

• Benefit Period - the length of coverage, i.e., the maximum amount of time during which an insured can receive benefits. Benefit periods generally range from two to five years. Most employers choose a three-year or five-year benefit period.

• Elimination Period - Also known as the deductible period, this is the number of days that must be satisfied before benefits are paid. While elimination periods range from 0 to 365 days, the 90-day elimination period is the group standard.

• Benefit Payment Method - There are three types of benefit payment methods to choose from:
  • Reimbursement - As the name implies, under this method, benefits are paid only for actual incurred expenses for services provided by certified caregivers.
  • Indemnity - Benefits are paid at a pre-determined daily amount, regardless of incurred expenses. However, claimants must provide proof that services are provided by certified caregivers.
  • Cash benefits - The newest, most flexible option. There are no caregiver requirements, provided the insured's physician verifies eligibility. Insureds can use the benefits however they like-say, to reimburse non-certified caregiving relatives.

To maintain more affordable premiums, we find that most employers choose the Reimbursement payment method.

• And of course, there are many add-on options to choose from, ranging from Survivorship to Shared Care Benefits. Your broker can guide you through these choices. Suffice it to say that the most valuable option you should consider is Inflation Protection (see the "Inflation Protection" sidebar at the end of this article).

4. Structuring your plan (or plans)

One of the best things about LTCI is that it offers employers so much flexibility. After all, LTCI is one of the few employee benefits that is "discriminatory" in the eyes of Uncle Sam. In other words, an employer can offer different LTCI benefits to different groups of employees, or choose to cover only select employees.

Premium payment is flexible, too. Employers can offer a 100% voluntary plan...pay premiums for some employees but not others...or pay partial premiums and invite employees to purchase additional coverage. Here are the most common types of plan structures:

Voluntary plans

You can offer LTCI on a completely voluntary basis, which won't cost the company a penny.

Remember, one of the benefits of voluntary plans is that you can offer it not just to employees and their spouses, but to their extended family members, including their parents, siblings, and in-laws. And even extended family members can enjoy a group premium discount.

In addition, you can even offer LTCI to retirees, a rarity in the benefits world these days. Our experience is that when companies make LTCI available to retirees, the response is strong. If you have a valued retiree population, it's a great way to show your appreciation.

There are three keys to a successful voluntary LTCI plan:

• Offer your employees a choice of two or three plans, so they can pick the one that best fits their situation and budget.
• Include a "basic" (low benefit) plan in your selection. Making protection more affordable boosts participation.
• Make sure your broker/specialist provides a thorough, turnkey enrollment. The more detailed the enrollment process, the better your employees will understand the coverage. And the better they understand it, the higher your participation will be.

Carve-out plans

Carve-outs can be structured any way you like. Basically, the employer "carves-out" a group of employees who will receive employer-paid LTCI benefits. Needless to say, carve-outs make an excellent executive perk. Or, you can use a carve-out to reward employees who attain a fixed number of years of service.

Furthermore, you can provide a carve-out plan for key employees, while offering a voluntary or buy-up plan (see below) to the remainder of the workforce. Voluntary benefits can also be offered to spouses and extended family members. In other words, you can truly tailor the plan to fit your group's particular benefit philosophy.

Core plans with an employee buy-up option

These plans, also known as minimum benefit or partial paid plans, are generally very successful. Under this arrangement, the employer pays for a modest core plan (say, $100 in daily benefits, with a two or three year benefit duration), and employees can elect to purchase, or "buy-up" additional benefits.

Buy-ups work because they make coverage available and affordable. A modest core plan may cost the employer as little as $15 per month per employee. It's also affordable for employees, because they can choose to buy additional benefits that work within their budget.

Example: XYZ, LLP is law firm with 100 employees, 30 of whom are partners. XYZ provides a carve-out plan to the 30 partners. The benefits are comprehensive (a $200 daily benefit for a five-year duration); the premiums are completely paid by the law firm.

For the remaining 70 employees, XYZ provides a core plan with buy-up option. The firm pays the premiums for a modest core plan (say, a $100 daily benefit for two-year duration). Employees have the option of buying more coverage (say, increasing daily benefits in $10 increments, up to $300). Employees are given a choice of plans, and are educated during the enrollment period to help them make the best choice for themselves.

Finally, spouses, eligible extended family members, and retires are offered coverage on a voluntary basis, with a choice of the same plans along with additional options.

This is a well designed plan. XYZ has taken advantage of LTCI's flexibility to create a custom plan that works for their group.

5. Know the tax advantages

No matter what the structure of your company-C-Corp, S-Corp, partnership or LLC-LTCI offers significant tax advantages. And unlike disability policies, benefits are largely tax free, a very important distinction.

Here are the specifics. Of course, you'll want to check with your own tax experts to confirm that these apply to your group.

For employers:

• Employers may deduct up to 100 % of tax-qualified LTCI premiums as business expenses. Use the same guidelines as you do for health insurance premiums.
• Benefits may legally be offered on a "carve-out" basis, allowing employers to provide a tax-advantaged perk to select employees.

For employees:

• Premiums may be paid for out of a tax-advantaged Health Savings Account (HSA), subject to age-based maximums (see chart below).
• In 2009, the first $280 in daily benefits (or $102,200 per year) received is tax free.
• Many states offer additional tax deductions or credits pertaining to LTCI premiums. Check with your broker/specialist so you can pass this information on to your employees.
• Employer-paid premiums are not treated as taxable income to employees.

2009 Schedule of Tax Deductible Premiums HSAs Allow

Age (before year end) Deduction

40 or younger $320

41-50 $600

51-60 $1,190

61-70 $3,180

Over 70 $3,980

Yes, LTCI is a complex product to learn. But it's also an extremely valuable one. The key to getting the most value from your LTCI plan is to do your research up front. Choose a solid carrier, put thought into your plan design and make sure your broker/specialist will give the enrollment the attention it deserves. With Long-term Care Insurance, it's that up-front effort that yields the greatest "long term" value.

Murray Gordon is a nationally recognized long-term care insurance expert, with 45 years in the insurance industry and 34 years as an LTCI specialist. One of the first to anticipate growing need for long-term care, he founded MAGA-an independent LTCI agency-in 1975. You can reach Murray at maga@magaltc.com or 800/533-6242, or by visiting www.magaltc.com.

What is LTCI?

• Long-term care is described as providing care/services when a person is unable to care for themselves as a result of an illness or injury.

• LTCI benefits are triggered when a person needs help performing any two of the activities of daily living (dressing, eating, toileting, bathing, transferring, or continence), or has a severe cognitive impairment diagnosis, like Alzheimer's, dementia, or senility. The person's doctor must certify that care will be required for at least 90 days. (Unlike complex Long-term Disability definitions, which vary by carrier, LTCI triggers are simple and uniform.)

• LTCI includes coverage for home care, adult day care, assisted living, and nursing home care.

Why Add LTCI?

• Your employees want it. According to government surveys, most Americans recognize the need for long-term care planning and are looking to their employers for help obtaining it.
• Your employees need it (and so do you). It's estimated that 70% of people over age 65 will need care at some point.
• Long-term care expenses are not covered by your group health or long-term disability insurance, and Medicare offers very limited, hard-to-get benefits.
• Without LTCI, most people are forced to gut their retirement funds to finance LTC expenses. (For example, nursing home costs average more than $75,000 a year.) LTC protects your nest egg, which very much needs protecting right now.
• Case in point: paying out-of-pocket for long-term care is the single largest insolvency trigger for retirees.
• LTCI boosts productivity. Studies show that caregiving employees are distracted, inefficient and prone to absenteeism and turnover, costing America's employers more than $17 billion each year. Voluntary LTCI can be offered to spouses, parents, siblings, and in-laws, alleviating the caregiving burden.
• LTCI offers numerous tax advantages-keep reading!

Inflation Protection

While there are many LTCI options available, Inflation Protection is the most important by far. It insures that your benefits keep pace with rising healthcare costs by automatically increasing benefits on each policy anniversary.

Here's why it's so important: n 1975, nursing facility care cost roughly $20 per day. Now, that same care costs $213 per day. By 2015, costs are expected to top $290 per day. Without Inflation Protection, benefits will quickly lag behind.

There are four basic Inflation Protection options:

• Simple 5% Annual Increase
• Compound 5% Annual Increase
• CPI Compound Annual Increase (adjusted according to increases in the Consumer Price Index)
• GPO (Guaranteed Purchase Option) - Gives insureds the option to increase benefits at policy anniversary.

Something to note: with simple and compound increases, the cost is spread over the life of the policy, so it's predictable. While GPO offers more flexibility, any elected benefit increases are based on the insured's current age, which translates to higher rates.