Group vs. Individual Long Term Care Insurance
Important Information Before You Sign Up For An Employer or Association Plan
Is the long-term care insurance plan offered by your employer or the association you belong to a great deal or one that costs more than you need to pay?
Conventional wisdom says that group insurance policies cost less than a policy you could purchase on your own. That may be true for certain types of insurance, but it is not always true for long-term care insurance.
With employer-offered long-term care insurance (LTCi) there are important factors consumers need to evaluate. By doing careful comparison shopping, you might find you are able to get equal or even better coverage for less money. Keep reading to learn how to evaluate which is better, the group long term care insurance being offered by your employer or trade group or an individual long-term care insurance policy.
The following is an actual comparison of current rates for a 55 year old employee seeking coverage for themselves and their spouse. Rates are for virtually identical coverage from the very same insurance company (a top-rated carrier) offering both group and individual plans.
True group coverage : both spouses: $1,877-per-year (50% home care benefit)*
Voluntary worksite : both spouses: $1,351-per-year (100% home care benefit)*
Individual policies : both spouses: $1,422-per-year (100% home care benefit)*
The group plan is one offered to employees of a relatively large state and only offers a home care benefit equal to 50 percent of the skilled nursing home benefit. By comparison, the individual policy offers a 100 percent home care benefit and still costs 25 percent less for a healthy married couple.
Summary: Employer offered long-term care insurance will almost always be your best deal if you have health issues and would be ineligible for coverage on an individual basis or would be 'rated' and required to pay substandard health rates. If you are in reasonably good health or you are married (living with a partner) you will likely pay more for employer-offered coverage than you would for identical protection purchased on an individual basis.
Many employers and professional organizations and alumni groups now offer long-term care insurance. In theory, the purpose of a group plan is to spread the risk of claims over a wider group of people and to secure savings typically achievable when more people are buying coverage. It works well for some forms of insurance such as group life or group health. Savings may not be the outcome when it comes to LTC insurance.
Today, there are two common forms of employer-offered long-term care insurance. Larger employers, generally those with 500 or more employees, typically use traditional "true group" policies. Currently, only a few larger insurers offer true group LTCi coverage. Prudential and Genworth are two who make coverage available to new groups.
Most group long-term care insurance plans offered by employers are voluntary (employee pays all costs) though some employers offer a minimal benefit to all eligible employees allowing individuals to buy additional coverage.
The most significant benefit of true group policies is their willingness to offer coverage to individuals with health issues. Not only may individuals with health limitations or conditions be offered coverage, they typically pay the very same rate as healthy individuals. For example, the recent open enrollment for the Federal long-term care insurance plan, the nation's largest true group LTCi plan, accepted those with conditions such as insulin-dependent diabetes, AIDS, HIV-positive, history of stroke or a history of alcoholism or drug addiction.
The insurance company factors the expectation of increased enrollment by individuals with health conditions as well as the greater likelihood they will eventually need care into their premium rates. They spread this greater risk among the cost paid by all enrollees. Or, more succinctly stated, those in good health subsidize those in poor health. There are other considerations outlined later.
The second type of group offering (sometimes referred to as "multilife") packages individual long-term care insurance policies together offering a discount to all who are eligible to enroll. The discount, typically 5-to-10 percent, is extended to as broad a group as possible including spouses and even parents of both the employee and their spouse. While this form of coverage, usually offered on a voluntary (employee-pay-all) basis, is sometimes utilized by larger entities, it is midsize and small groups who increasingly favor it. The discount is generally offered so long as the group has 10 or more individuals eligible.
Multilife long-term care insurance policies are available from leading insurers Genworth and Prudential as well as top carriers such as Transamerica, MedAmerica, Mutual of Omaha and John Hancock.
Generally, these policies are the very same policies one would purchase on an individual basis from an insurance agent. Most companies will still require the applicant to undergo full health underwriting prior to be accepted for coverage. Some may have more simplified questions depending on the size of the group and whether the employer contributes to the program.
How can the insurance company offer a 10 percent discount for coverage identical to their individual policy? The discount results from reduced compensation paid over time to the benefits consultant or insurance professional. As a result, long-term care insurance protection offered in this way is increasingly attractive to employers and to individuals.
Summary: If you are in relatively good health, a non-smoker and married (or living with a partner) you might be shocked at how much less you'll pay for equal long-term care insurance coverage. If you are single, you won't qualify for the significant spousal discount, but it generally pays to compare if you don't have health issues or take multiple medications.
Most long-term care insurance protection today is still purchased on an individual basis either from an insurance agent coming to your home or increasingly over the telephone or Internet.
Good Health Discounts:
With this form of LTCi policy, each the current health of each individual applicant is evaluated by the insurance company. Depending on your age, the insurer's underwriters will request and evaluate a variety of health information.
Those in good health qualify for a most significant discount (typically 10 percent) which isn't lost even when your health changes. Those with some health issues will pay more. Those with conditions the insurer feels pose the greatest risk for a future long-term care need will be declined coverage. The percentage of applicants who are declined because of health reasons increases as one ages. That's why, after age 50, waiting to apply is a particularly risky idea.
Health standards are actually to your benefit. By creating a pool of healthier individuals, the insurer is able to offer lower rates to all accepted applicants. It also minimizes the risk of a future need for rate increases that could arise from more claimants than initially anticipated. Keep in mind that good health today does not mean you'll continue to remain in good health in future years. Insurers acknowledge that after a period of seven or eight years, the positive effects of their good health underwriting are lost -- meaning you are just as likely at that point to need care as everyone else. But you have insurance coverage in case you do.
Spousal / Partner Discounts:
Individual long-term care insurance policies offer "Marital" or spousal discounts that can reduce the cost each person pays by as much as 40 percent. Or, for those wives whose stalwart husband says he'll never need long-term care, the combined savings (80%) means his policy only adds 20 percent to the total cost.
Some insurers will offer this discount when only one spouse applies or when only one spouse can qualify for coverage. In addition to married spouses, in most states discounts are even given for domestic partners or when individuals have resided together for a period of years.
Partnership Asset Protection:
A growing number of States have approved Long-Term Care "Partnership" programs that provides a significant added benefit to consumers who buy more affordable, limited-term LTCi policies. These are policies that may only cover needed care for a period of three or four years.
If your employer or some other organization offers you long-term care insurance, it never hurts to compare to make certain you are getting the best (lowest) cost for the best future benefits.
In fact, a designated long-term care insurance professional from the American Association for Long-Term Care Insurance will gladly provide you with a no-cost comparison.
Compare CURRENT Benefits
Make an apples-to-apples comparison of the current policy features used to determine your current cost.
What is the initial daily benefit?
Does the policy pay 100% for home care, assisted living, nursing home care?
How long are benefits paid when you qualify for care?
How long is the waiting period before benefits are paid?
Does the policy only reimburse for actual expenses or provide cash for you to use as desired?
Compare FUTURE Benefits
To keep pace with rising costs, you'll want any coverage you buy to grow over time. Group policies may appear cheaper (lower initial cost) because they do not have a growth option included.
Is an inflation growth option included?
Is it an option that will cost more in future years?
What will your benefit level be in 10 years, in 15 or 20?
Compare INSURERS
Every year the American Association for Long-Term Care Insurance analyzes rates from leading long-term care insurance companies. Our 2011 study found rates can vary by 42-to-60 percent for virtually identical coverage.
Because insurers do not market long-term care insurance policies directly to consumers, you need to ask the insurance professional you choose to work with if they only represent one company ("agent") or have access to policies from multiple insurers ("broker"). Each insurer has one or more "sweet spots" when it comes to pricing and acceptable health conditions, so working with a knowledgeable professional is a smart move … one that can save you time and money.
If you have a relationship with a financial planner or other insurance professional, you can ask them to compare the group or employer long-term care insurance program with individual long-term care insurance. There should be no charge for this comparison.
Or, if you prefer, a designated member of the American Association for Long-Term Care Insurance will gladly do a comparison of benefits and costs for you.
Call or Use The Association's Online Request-A-Quote Form
Call the Association offices at (818) 597-3227 and our staff will gladly assist, or,
Complete our online free request for a rate quote. There's never any obligation. Click here now to start the process.