Is group Long-Term Care Insurance cheaper or better? Quite doubtful.

There are quite a few reasons why, more often than not, employer-offered long-term care insurance (LTCi) is not a better deal than a comparable individual policy.

According to a January 7, 2012 Wall Street Journal article by Leslie Scism, “When Should You Buy Insurance from your Boss?”, “Many people assume insurance offered by their employer is a better deal than they can get on their own. But while the premiums can be lower, such policies have drawbacks.”

LTCi Specialist Andrea Graham of Upstate Special Risk Services, Inc. inRochester,NY (thanks for allowing me to publish this, Andrea!) adds, “My background is employee benefits, and I will tell any producer who asks, individual LTCi is always better than group, even if the price is the same or higher.”

“Group insurers know they are dealing with working people, a generally healthy population. These carriers are also dealing with ‘young’ ages on average; in 20 years I had one death claim on an employee. Some types of insurance, dental for example, might only be available to a group – likewise for some health insurance benefits or riders. For this reason, employee benefits at the larger companies that offer group LTCi are usually very good (think GM, IBM), and employees rightly feel that their group benefits are better and cheaper than anything they could buy on the individual side. So they are dumbfounded to find that they can get a nicer LTCi policy, usually for the same or less premium, by shopping the individual market!”

“This is because all employee group benefits disappear or reduce significantly when the employee turns 65 and/or retires, and the carriers offering these coverages know full well that their risk is based on actively-at-work full-time young(er) employees. Hospitalization turns into Medicare. Any group life that might remain is reduced to a small death claim. Group disability stops when the employee stops working, and most employees do not offer dental or vision coverage to retirees.”

“Group LTCi is the only benefit a retired employee carries out the door with them, the only benefit that continues to grow in value just when the risk increases for the carrier. Carriers who specialize in guaranteed-issue group (John Hancock, Met Life, Prudential, CNA) are well aware of this, well aware of the adverse selection they will be accepting, well aware that they’re lucky to get 10 percent of employees to enroll”

“Therefore, these policies are more restrictive, offer fewer choices, and are usually more expensive than individual coverage, especially if the employee wants to include inflation protection.”

“You will never see 100% home care benefits in group coverage; you will have a 90-day elimination, no more no less, and no other riders are available. The community-care benefits in a LTCi policy are what matter, tell me what you’ll do to keep me out of a nursing home! Group contracts offer very little in the way of bells & whistles, they may say they’ll provide “informal” care but read the fine print, highly restrictive and informal might mean ‘not a home care agency,’ very little in the way of assistance or on-site care coordination which can be so valuable to a family. Most group coverage does not qualify for state partnership asset protection programs; they don’t try as most employees wouldn’t pay for compound inflation anyway.”

“There are employer-sponsored small groups, where better policies are available although maximum benefits might be restricted, but these would not be guaranteed issue although you might get some underwriting concessions for employees; most carriers offer some version of this type of group and I’m not including these small groups in the discussion above.”

Let me throw in my two-cents-worth!  In addition to agreeing with everything Andrea states, I want to emphasize that group LTCi typically has only one rate band and does not offer spousal discounts. Married people, and/or those in Preferred health, are penalized, in terms of rates, and “subsidize” the premiums of those in poor health. Therefore, if you’re not very healthy, especially if you’re also single and/or older, group plans may be a good deal for you.

In my opinion, choosing the right LTCi plan is very difficult for a typical employee and as a result, many group LTCi offerings have a low “take up” rate. My experience is that many just put off acting on their group LTCi offer because the choices are so complex and potentially confusing.

The very worst thing I see on a regular basis is someone’s insistence that their group LTCi is cheaper than any individual policy I can show them. Indeed, many have boasted that their LTCi is a bargain at only $25 or $50/month. But these premiums are that low primarily because they’ve chosen a policy with no built-in inflation protection. When I do an “apples-to-apples” comparison with an individual policy, the group policy’s cost is always higher. I emphasize again: group LTCi is not cheaper for the reasons Andrea and I have given!

LTCi purchased without automatic, built-in inflation protection, is often dangerous for policy holders. Such coverage can cause clients stress and insecurity in later years when they realize that their group LTCi’s benefits have not kept pace with the current care costs.