Why employers are pivoting to hybrid life and long-term care plans

Step one: Shopping: understanding the need, selecting a product, and purchasing.

As employers consider the type of plan(s) to make available through their non-sponsored benefits, they and their advisors generally evaluate whether a proposed offering is relevant to employees' current and future needs, affordable enough to fit most employee budgets, and simple enough to be purchased through employer-based delivery systems and processes.

Here is a comparison of the purchase experience for "hybrid life/LTC" and "standalone LTC" coverage:

• Relevance - The need for life insurance is familiar, while the need for LTC is growing in awareness, fueled by increasing longevity and the rising cost of LTC care.
• Affordability – the hybrid plan packages life insurance with LTC benefits; consumers see a relatively small upcharge to a relatively familiar product (and they know the plan will eventually pay a benefit), whereas the pricing of standalone LTC products is confusing and there is no guarantee the coverage will result in a benefit.
• Simplicity – the application process and underwriting turnaround is clearly superior in the hybrid plan (see above example).

The employee purchase experience is clearly more favorable with the hybrid approach. The hybrid product is easier to understand and employees are familiar with applying via employer-based systems. The relative simplicity of the application process and the combination of coverages is appealing. Higher net worth customers or those seeking to protect wealth, ensure quality of care, and those seeking more comprehensive dependent coverage may find stand-alone LTC more relevant, though sacrificing ease of process as a result.

Step two: Ongoing ownership of the product prior to a claim.

Once purchased, and before filing for claims, customers must maintain relevant personal and family information, continue payment for the plan, and updating coverage as necessary when needs change. Here is a brief comparison of ownership experience of the two product designs:

• Billing and premium payment – hybrid plans are billed through the employer's payroll and benefits administration systems; most standalone products are direct billed.
• Cash availability in the event of non-LTC need – the hybrid product may be designed to have available cash value for loans or withdrawals, whereas standalone products do not have cash values.
• Keeping coverage up-to-date – increasing coverage under hybrid products is virtually identical to the easy initial purchase process; purchasing increased coverage under standalone product is cumbersome.
• Demographic updates – important updates such as beneficiary, insured's address, etc. can be efficiently processed through employee access portals on each product type, although standalone products may be serviced through individual processes rather than employer systems.

In general, hybrid life/LTC products are managed just like permanent life products, and this is a familiar process to most employers and their Human Capital Management (HCM) or benefit administration systems. Standalone LTC products often follow more of an individual administration path, with less coordination through the employer. This results in more work and a difficult process for employees.

Step three: Applying for and managing claims.

The most crucial time for measuring customer experience for insurance products is usually the time of fulfillment – presenting a claim to the insurer. One familiar type of claim in the hybrid product, but not the standalone LTC product, is a life insurance claim, payable upon death of the individual. The hybrid product is purchased with a defined benefit amount. As long as premiums have been paid, the full benefit is payable unless payouts have been made for long-term care (or, in some cases, policy loans or withdrawals from available cash value).

• Death benefit – Hybrid products are based on life insurance policies and the claims process is familiar for the death benefit; on standalone products, if no LTC benefits have been paid, the product simply terminates upon death of the insured.
• LTC benefit – on hybrid products, benefits are triggered by inability of the insured to perform Activities of Daily Living (ADLs), or severe cognitive apparent and the benefit paid is expressed as a percentage of the purchase death benefit; and standalone products, benefits are triggered by similar ADL or cognitive impairments, and benefit options in these products are based on the defined policy limits. In both plan types, benefits may differ based on the severity of the required LTC services.
• Filing a claim – filing for the death claim element of a hybrid policy generally only requires proof of death and beneficiary data. Filing a long-term care claim in either plan requires appropriate medical certification of impairments, documentation of the care plan, and periodic recertification of claims eligibility. Insurance companies generally provide claims navigators to assist in the process.

Claims processes can be stressful for each plan. Claimants for long-term care benefits are dealing with significant medical issues related to a loved one. If proper planning of medical powers of attorney has not been done, there can also be significant legal roadblocks. Selection of LTC service providers or facilities are also stressful. Customers may struggle to understand the amount the product will pay and the duration of benefits. As a result, it's always important to have appropriate advisors advocating for the insured.

Making sure the LTC plan is supported by a great claims process is essential. A close family member recently had to file a claim on a standalone LTC product for a covered spouse. The policyowner was very unhappy about the process. Her husband has a progressive neurological disease. She started the claim process, but the insurer required that a claims analyst call her husband to ask him detailed questions. She had described the situation thoroughly to the analyst, but when asked about his abilities, her husband denied that he was unable to perform the ADLs. It took her several follow-ups calls to convince the analyst that the insured, a business owner, would not admit his shortcomings, and that he could not independently perform the required ADLs. It was not an ideal process, to say the least. Hopefully, this was a rare occurrence for the insurance company.

In summary, while each type of product serves a distinct need, the hybrid life/LTC product provides meaningful protection, in both life and LTC benefits, which are suitable for a broad market. The suitability is enhanced by the fact that the hybrid product provides a simple, affordable, and relevant level of protection for most employees, without creating administrative burdens for employers beyond those common in all HR technologies.

RAE Egleston is Executive Vice President, Technology & Enrollment Consulting Practice, Gallagher. He may be reached at Richard_Egleston@ajg.com
Marty Traynor is an Omaha-based consultant in the benefits field.He may be reached at currentbenefits@gmail.com