There have been some significant changes in long-term careinsurance (LTCI) offered to corporate clients in 2010. The lessonsthat have been learned may lead to a dramatic shift in how LTCIis offered to groups in the future. This article will discuss someof the changes that have taken place and what to look for in2011.

Changes in group LTCI
Last year we saw a leading LTC insurer stop selling new groupplans, while another indicated they will stop accepting newadditions to existing groups. What happened? Much of the difficultywas based on original pricing assumptions that were wrong. Forexample, many thought that there would be many more policy lapsesthan what actually occurred. Whether people buy individual or groupLTC coverage, they will keep it, even with premium adjustments.

Because of the high policy retention, claims were much higherthan anticipated. Reserves were also under pressure from a lowinterest rate environment. In addition, the guaranteed issue natureof group LTC plans can lead to adverse selection as older andsicker employees gravitate towards coverage. Group plans have ahigher percentage of single policy holders, and industry claimsexperience shows that singles will be a bigger risk than marriedcouples. The same issue of adverse selection can affect small groupprograms using individual policy forms as well. When only 3applications are required for simplified underwriting, carriers maybe at risk for some sub-standard risks getting coverage. Takentogether, these factors created a difficult environment for groupLTCI.

Health CareReform
Another important event in 2010 was Health Care Reform. One littleknown provision of HCR was the CLASS Act, the government voluntaryprogram for LTC. With the CLASS Act, employers will be able toparticipate in a 401(k) style auto enrollment, where employees cancontribute premiums and receive benefits.

State budget pressures Finally, 2010 was a yearof reckoning for many states as their budgets are being severelyimpacted by Medicaid, the biggest payer for nursing home costs.

Trends for 2011
With that background, we anticipate several trends for group LTCIin 2011.

Expect lots of news stories on LTCI and increasedawareness. LTCI will be seen as an answer to two problems.First, as boomers experience the impact of caring for aging parentsand the high cost, they’ll start planning for their own possiblefuture care and look to LTCI as an answer. A natural place to lookat buying this coverage is at the workplace. Also, as news storiesdiscuss the impact of Medicaid LTC costs, federal and stategovernments will look to LTCI to help pay claims.

Employers will learn about the CLASS Act and group LTCoptions. Employers, looking at the impact of caregiving ontheir employees and facing the January 1, 2013 start date of theCLASS plan, will investigate solutions for LTC planning. Employerswill look at LTCI as something that impacts two major employeebenefits. First, it helps pay for extended care costs not coveredby Medicare or health insurance. Second, it will help protectassets in 401(k) and other retirement plans from being spent on LTCcosts.

Carriers will insist on more health underwriting in LTCprograms. Because of some poor claims experience withsimplified issue and guaranteed issue programs, expect thatcarriers will try to be more selective in underwriting LTCI. Thismay mean changes such as increasing the number of participantsnecessary for simplified underwriting programs or basingunderwriting on group demographics.

In the past, a complicated paper enrollment process or theinability to ask health questions online limited the appetite formore health underwriting—that is changing because of new enrollmentwebsites discussed below.

More comprehensiveenrollment websites for groups of all sizes. For the mostpart, online LTC enrollment has been geared towards guaranteedissue large group LTC plans. Now, however, new technology willallow more customized websites for a variety of groups, from smallto large. Underwriting will be included with some of the voluntaryand small plans with reflexive health questions to make the processeasier.

A growing comfort with online enrollment. Arecent Eastbridge study showed that satisfaction with onlinebenefits enrollment is often equal to face-to-face. Webinars andon-demand education tools give employees a chance to learn, andthen they can enroll either online or using a call center at a timeconvenient to their busy schedule.

Many employees actually prefer not having to do a face-to-facemeeting, where they may feel pressured to enroll in a benefit. Inaddition, many companies are hesitant to allow for mandatorymeetings on company time. Additionally, with group LTCI it is oftendifficult to get both the employee and spouse and sign up. Byoffering more virtual enrollment assistance convenient toemployees, there should be a higher percentage of spousalcoverage.

Increasing need for in-force policy review andadvice. A January article in the Journal of FinancialService Professionals shows that in a survey, 32.2% of those withinvestible assets of over $100K plan to use a private policy to payfor LTC. However, what do those policies cover? Do they cover homeand assisted living care? What is the inflation benefit and benefitmaximum?

What is the current financial condition of the carrier? Offeringadvice on current policies would be a big benefit for employers andtheir employees. This will help them with decisions on what to dowith current coverage and whether to look at adjusting it,supplementing it, or in a rare instance replacing it.

The return ofexecutive carve-outs. The economy is improving, and withthat comes higher company profits and renewed interest in executivebenefits. As states raise corporate tax rates to plug budgetshortfalls, an executive LTCI plan makes great sense. Premiums aredeductible to the C-corporation, not considered income to theemployee, and benefits are received tax free. Look for a bigupswing in these plans. LTC Insurance has had plenty of challenges,but it’s important to realize it is still a young product.

However, for policyholders the benefits are dramatic. Accordingto the American Association of LTC Insurance, carriers are payingclaims at a rate of over $4 billion per year. This number willincrease, and word of mouth about the benefits of LTCI willincrease interest as well. Of course, timing is everything.

Experience shows that adding LTCI to a cafeteria list of otheremployee benefits at open enrollment time will not work. LTCI needsto be a standalone benefit offered off the open enrollment cycle.With proper planning and assistance, it can be an importantoffering for benefit advisors.