Exploring the Differences Between Group and Individual Long Term Care Insurance
by John Noble
Over the past few years, long term care (LTC) insurance has proven itself as a valuable product in the marketplace. A growing number of employers and consumers are becoming more aware of long-term care insurance and more interested in purchasing LTC policies. New questions have surfaced, now that we’ve moved past focusing solely on convincing clients about the importance of long-term care coverage. Which type of policy is best – group, or individual? This article explores the attributes of each type of policy.

Group LTC

Employer-sponsored group long-term care insurance has seen significant, steady growth over the years. According to -LIMRA’s Group Long-Term Care Insurance: Annual Review 2008, the compound annual growth rate for employer-sponsored sales is 12% for the 10-year period from 1998 to 2008. Despite declines in individual LTC insurance sales, new premium for the employer-sponsored group LTC insurance market increased 18% in ‘08.

The Following Are Attributes of a Group LTC policy:

Guaranteed Issue: Many employer-sponsored policies are guarantee issue. This is an advantage for employees – especially those medical conditions that could preclude them from purchasing a policy or greatly increase the cost of purchasing a policy. Many employers have active employees with disabilities. The guarantee issue component of group policies allows these employees to get coverage. Any policy that had underwriting questions would preclude people from getting coverage.

Fully Portable: Many employees don’t realize that their LTC policy is fully portable. Once the employee purchases a policy, they own it. Their policy moves with them. The only change the employee will see is that their bill will be sent to their home address rather than being deducted from their paycheck. No change in rates occurs for people who elect portability; they maintain the same rates that they had while an active employee.

Fits With Other Employee Benefits: Employers are awakening to the fact that their insurance portfolio may be lacking a vital component just when they are looking for ways to keep their employees satisfied with the benefit package, while attracting new talent. Moreover, as benefit costs rise, a LTC program adds value to the benefit package. And as older executives age, they are often more attuned to the long-term care needs based on their own experience or that of an employee.

Employer Elects Plan Designs To Be Offered: The employer chooses the plan design to offer to employees depending on the employer’s needs and resources. The level of care, duration of care, elimination period, benefit amount, and optional enhancements can be designed to meet a specific employer’s needs.

The Employer Owns The Policy : With a group policy, the employer owns the policy while employees get certificates of coverage. This allows the employer to make certain plan design decisions and set the plan design and eligibility criteria for the case.

Tax Benefits: There are tax advantages for employers and their employees. With federal tax advantages, businesses can deduct employer-paid premiums; employee premiums are not considered imputed income; and employee benefits received are not considered part of gross income. Additionally, 29 states offer tax credits or deductions for LTC premiums.

Employer-Level Discounts: Depending on the industry, a willingness to fund a base plan and other lines of coverage inforce discounts can be applied to the rate. These discounts directly lower the premiums for employees and extended family members who sign up for coverage.

Flat Commissions: For brokers who work with one particular company, for example, the commission structure is a flat 20% commission. There is not a high to low scale. The high to low scale may look good on the front end, but the flat fee is actually more beneficial in the long run given the high persistency of the product line.
Another important fact is the high persistency rate of the group LTC policy. Cases are not terminating and the persistency rate this year, is 93.7%, which has been very consistent over the past 20 years according to Unum’s internal data.

Individual/Multi-life LTC: The individual product is sold in the employer setting as well. This is usually referred to in the industry as the “individual/multi-life market.” It is important for brokers to know the differences between the group and individual/multi-life products to provide the best advice to their clients.

Attributes of the individual product include the following:

Some Medical Underwriting: Individuals will need to go through medical underwriting. The policy is likely to be more expensive for an individual with medical issues or an individual in an older age bracket.

All Product Features Available: Rather than depending on the employer’s plan design, all product features are available to an individual. An individual can tailor a plan to meet their needs.

The Individual Owns The Policy: Portability is not an issue with the individual policy. The individual owns the policy.

Direct Billing If The Employer Does Not Want To Do Payroll Billing: The option for direct billing is available for employers offering LTC insurance through the worksite in a multi-life setting, so the employee will get a bill rather than ever having the payroll billing option.
 
Tax Benefits: With the passage of HIPAA, many tax advantages apply to LTC coverage. In certain situations, you can deduct the premium paid from your federal taxes. Many states also allow the deduction of LTC premiums from the state taxes owed as well. When receiving a benefit, this is typically received tax free as well up to certain caps.

Individual Level Discounts: All discounts for individual products apply to the individual based on a spouse signing up for coverage and the individual’s health history.

High/Low Commission Structure: Rather than a flat commission as offered for the group LTC product, the individual commission structure is high/low. After three-to-four years, the difference between the two structures becomes even. That means that, although more commission is made on the individual product during the first two years, the flat 20% commission on the group product will pay more in the end.
Long-term care insurance is arguably one of the most important benefits that an employer can make available to their employees. Over the past several years, the industry has seen significant growth in the long-term care insurance market. Since the need for long-term care services can be experienced by anyone, at any time, the need for long-term care services is also increasing. One of the most compelling selling points of this insurance is the fact that the chances someone will encounter an LTC situation are high.
As more and more brokers get into this market, it becomes increasingly vital for them to stay on top of the industry changes, make recommendations based on customer needs, and find the appropriate policy type and plan designs that have the best options available to a client. q
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John Noble is director of long-term care products for Unum and can be reached at jnoble@unum.com.