Right now, there's only one “true group” long-term care insurance carrier actively offering new business plans. So why would employers still look at LTCI as a vital retirement planning protection product? It's because a product line initially designed for small groups—multi-life individual LTCI contracts—is now moving to the big time.
To understand why, it's important to understand the history of LTCI offered to groups. Since the 1980s and 1990s, the majority of plans sold were of the “true group” variety. What do we mean by “true group?” A true group plan is one in which the insurance company issues a master policy to the employer, while each employee participant receives a certificate. This approach was used by companies such as Unum, MetLife, CNA, John Hancock, Prudential, Aetna and others. There were several advantages to this approach for carriers, benefit brokers and employers:
- Plans were based on the situs state of the employer's headquarters so all employees could typically have the same plan regardless of which state they resided in.
- Employees could have simplified enrollment, often with guaranteed issue, compared to individual policies.
- Plans and contract language could be customized for employers based on unique needs.
Most of these group plans were designed for groups of more than 1,000 eligible lives.
In the meantime, on a different floor of the carrier home office, teams were designing small group long-term care plans using individual contracts. Often these plans offered a premium discount and some type of underwriting concession—although never guaranteed issue like group products. Although these products were designed for the small group market, some LTC specialists started to use them for larger groups.
Bring it to the present day and our situation right now—the multi-life approach has won out. Why?
- True group carriers found that although they carefully underwrote programs, adverse selection could still occur, even on very large groups. Adverse selection can have a large impact on product line profitability for a carrier.
- States increased regulations of all LTC products, including group. Because of that, the advantages of group plans over individuals dwindled as group carriers had to modify programs to adapt to required plan benefits and licensing requirements of states.
- Individual multi-life products incorporated electronic applications and a more streamlined process so the employer and employee experience was consistent with other employee benefit plans.
- Changing carriers is easier because there is not complicated transfer of policy reserve necessary. Existing employees can keep their current coverage and new employees or those who passed on the offering initially can take advantage of the new carriers.
Perhaps the most important difference between true group and multi-life LTC from the insurance companies perspective has to do with the ability to offer new products to new insureds as pricing assumptions change over time. With the true group products, carriers had to continue offering the same rates to new enrollees that had been offered during the original offering of the plan. In some cases this resulted in new hires enrolling in an existing plan at rates that were ten years old. In order to raise the rates offered to new hires, the insurance company would have got regulatory approval for an in-force rate increase, because the employer was technically the policy holder.
The individual product approach meant that as new policy series became available from carriers they could be offered to eligible employees immediately while those currently insured get to keep the coverage they originally purchased without any change to their premium.
The result of all this for now, is it looks like the future of employer based LTCI will be through the individual multi-life approach. The good news is that there are several carriers to choose from with robust offerings. However, this is a not a market to dabble in. It's important to partner with an expert who can guide you and your employer prospect through the various carrier and education alternatives.
Unfortunately, we've seen too many examples where benefit brokers try to do these policies for the first time and struggle with disappointing results and unhappy clients. If you have a client interested in group LTC coverage, here are some things to consider:
- Why is the employer interested? In our experience, determining the motivations for wanting a LTC program is the most critical aspect of a successful program. If the human resources department is simply looking for an additional benefit to add to a list of programs, such as legal or pet insurance, then a complicated, expensive product like LTC is bound to fail. However, if the reason is directly linked to successful health or retirement programs and comes from a desire of top management to help employees protect their retirement portfolios, then there is a possibility of success.
- What is the communication plan? Will the benefit be buried on a third level web page? Or will there be complete cooperation from the employer related to benefits communication similar to health or 401(k) offerings? As difficult as it is to do, it often is better to walk away from an opportunity than acquiesce to a poor communication program.
- How will individual employees enroll? LTCI is an expensive specialized financial planning product that requires specialized knowledge, not to mention specific training and license requirements. Add to the fact that the product is most useful to married couples with spousal enrollments and health underwriting, and it is critical to find resources who can provide these important services—whether in person or over the phone.
The good news is LTCI can work in a variety of industries and employer types—if it's done carefully and correctly.
Jerry Manning, CLTC is principal of J. Manning & Associates, a national independent insurance brokerage and consulting firm specializing in long term care insurance. He can be reached at [email protected].
Tom Riekse Jr., CEBS, ChFC is managing principal at LTCI Partners, a brokerage general agency specializing in Long-Term Care insurance. Email him at [email protected].
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