Right now, there's only one “true group” long-term careinsurance carrier actively offering new business plans. Sowhy would employers still look at LTCI as a vital retirementplanning protection product? It's because a product line initiallydesigned for small groups—multi-life individual LTCI contracts—isnow moving to the big time.

To understand why, it's important to understand the history ofLTCI offered to groups. Since the 1980s and 1990s, themajority of plans sold were of the “true group”variety. What do we mean by “true group?” A true groupplan is one in which the insurance company issues a master policyto the employer, while each employee participant receives acertificate. This approach was used by companies such asUnum, 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'sheadquarters so all employees could typically have the same planregardless of which state they resided in.
• Employees could have simplified enrollment, often withguaranteed issue, compared to individual policies.
• Plans and contract language could be customized for employersbased on unique needs.

Most of these group plans were designed for groups of more than1,000 eligible lives.

 In the meantime, on a different floor of the carrierhome office, teams were designing small group long-termcare  plans using individual contracts. Oftenthese plans offered a premium discount and some type ofunderwriting concession—although never guaranteed issue like groupproducts. Although these products were designed for thesmall group market, some LTC specialists started to use them forlarger groups.

 Bring it to the present day and our situation rightnow—the multi-life approach has won out. Why?

• True group carriers found that although they carefullyunderwrote programs, adverse selection could still occur, even onvery large groups. Adverse selection can have a largeimpact on product line profitability for a carrier.
• States increased regulations of all LTC products, includinggroup. Because of that, the advantages of group plans overindividuals dwindled as group carriers had to modify programs toadapt to required plan benefits and licensing requirements ofstates.
• Individual multi-life products incorporated electronicapplications and a more streamlined process so the employer andemployee experience was consistent with other employee benefitplans.
• Changing carriers is easier because there is not complicatedtransfer of policy reserve necessary.  Existing employeescan keep their current coverage and new employees or those whopassed on the offering initially can take advantage of the newcarriers.

Perhaps the most important difference between true group andmulti-life LTC from the insurance companies perspective has to dowith the ability to offer new products to new insureds as pricingassumptions change over time. With the true group products,carriers had to continue offering the same rates to new enrolleesthat had been offered during the original offering of the plan. Insome cases this resulted in new hires enrolling in an existing planat rates that were ten years old. In order to raise the ratesoffered to new hires, the insurance company would have gotregulatory approval for an in-force rate increase, because theemployer was technically the policy holder. 

The individual product approach meant that as new policy seriesbecame available from carriers they could be offered to eligibleemployees immediately while those currently insured get to keep thecoverage they originally purchased without any change to theirpremium.  

The result of all this for now, is it looks like the future ofemployer based LTCI will be through the individual multi-lifeapproach. The good news is that there are several carriersto choose from with robust offerings. However, this is anot a market to dabble in. It's important to partner withan expert who can guide you and your employer prospect through thevarious carrier and education alternatives.  

Unfortunately, we've seen too many examples where benefitbrokers try to do these policies for the first time and strugglewith disappointing results and unhappy clients. If youhave a client interested in group LTC coverage, here are somethings to consider:

1. Why is the employer interested?  Inour experience, determining the motivations for wanting a LTCprogram is the most critical aspect of a successfulprogram. If the human resources department is simplylooking for an additional benefit to add to a list of programs,such as legal or pet insurance, then a complicated, expensiveproduct like LTC is bound to fail. However, if the reasonis directly linked to successful health or retirement programs andcomes from a desire of top management to help employees protecttheir retirement portfolios, then there is a possibility ofsuccess.
2. What is the communicationplan?  Will the benefit be buried on athird level web page? Or will there be completecooperation from the employer related to benefits communicationsimilar to health or 401(k) offerings? As difficult as itis to do, it often is better to walk away from an opportunity thanacquiesce to a poor communication program.
3. How will individual employeesenroll? LTCI is an expensive specializedfinancial planning product that requires specialized knowledge, notto mention specific training and license requirements. Addto the fact that the product is most useful to married couples withspousal enrollments and health underwriting, and it is critical tofind resources who can provide these important services—whether inperson or over the phone.

The good news is LTCI can work in a variety of industries andemployer types—if it's done carefully and correctly. 

Jerry Manning, CLTC is principal of J. Manning &Associates, a national independent insurance brokerage andconsulting firm specializing in long term care insurance. He can bereached at [email protected].

Tom Riekse Jr., CEBS, ChFC is managing principal at LTCIPartners, a brokerage general agency specializing in Long-Term Careinsurance. Email him at [email protected].