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Employer Groups & Associations

Traditional thinking says that employers must use true group contracts for LTCI. The familiarity and lure of guaranteed issue insurance products might seem to lead to an obvious conclusion. However, long term care insurance is not like other insurance products. It’s a new consideration for individuals, as well as for human resources and insurance committees.

When offered on a voluntary basis, LTCI employee group applications are generally less than 10% of the employee population. Due to a lack of education and conditioning (compared to other insurance products) the participation is fairly low initially. Generally, two employee groups will make application: (1) individuals who “get it” because they already have serious health issues that would make them uninsurable for individually-underwritten policies and (2) LTC-educated, insurable employees who often have had personal LTC experiences with family members or friends.

Most often, the average employer true group of LTCI insureds has a significant percentage of higher health risk individuals. Consequently, adverse selection exists for the entire group, which, in turn, may cause:

  1. Elevated risk for future premium increases due to earlier claims with longer durations,
  2. A cognizant insurance carrier to offer true group policies  with less desirable policy benefits that carry less claims risk for the company than individually underwritten policies.
  3. Inflation protection to be excluded, discouraged or offered to applicants in the form of future purchase option (FPO). As an inflation protection element, FPO works to offer an increase of benefits on a specific schedule. Each time the insured accepts the increase in benefits, he/she will also incur an increase in premium based on attained age. The premium increase with the first few acceptances is deceptively low. It’s as the insured ages that the premium increases (with acceptance) will grow at a shockingly accelerated rate that is far beyond what an automatic, built-in inflation benefit (AIB) would have ever been.  As a result, true group insureds often (1) don’t take any increases at all or, (2) stop accepting benefit increases resulting in a decline of the value of their policies, or (3) lapse their coverage altogether.
  4. The exclusion of Indiana Partnership policies and withholding of information concerning the benefits of  Partnership policies with relevant inflation protection. Since Indiana Partnership policies require  meaningful inflation protection, this feature appears to add too much carrier risk for guaranteed-issue, adverse-selection, true group policies.

A conflict may arise between a desired goal for as many applicants as possible versus full disclosure. When LTCI  premiums appear to be initially “cheap” without inflation protection (including FPO), it may seem logical to assume that more employees will apply. When an automatic inflation benefit (AIB) is included, the initial premium is indeed higher. (However, premiums will not increase in the future based on the AIB because it is already calculated into the initial premium.)

The questions then become:  Should an employer group offer true group policies to its employees with a focus to the number of applications achieved or should an employer offer full disclosure as to the choices of LTC coverage available? Should the majority of (insurable) employees receive less desirable coverage so that the few health-challenged employees can obtain coverage which may provide a false sense of security for all? Should an employer offer education and policies that will make a difference in their employees lives in the future or simply offer LTCI policies based on low price? What liability or responsibility does an employer have to its employees to provide education concerning a new insurance product offering? The employer options are either to provide relevant information or withhold it.

But what about the number of applications? As employees become more knowledgeable about LTC risks, costs and workings of long term care insurance, they will appreciate the opportunity to purchase quality policies that will address their future LTC needs. When employees have the opportunity to receive the facts and coverage options, they have the tools and the ability to make the right choices for themselves.

At the point in time that future participation percentages substantially increase, then true group, guaranteed-issue LTCI might work, but adverse-selection and the resulting after effects  make it questionable at this time. 

Individual policies with full or modified underwriting for groups provide a variety of advantages for employees or association members including the availability of Indiana Partnership and a full selection of benefits that can be tailor-made to meet individual needs.