Monday, December 27, 2010

Employer-sponsored LTCi: Some words of warning

Once again, we're delighted to welcome our resident Long Term Care insurance (LTCi) guru, Herman Bruns, to IB. Today, Herman sets his sights on plans offered through one's employer:

I was in my car the other day listening to a well-known "consumer advocate" on the radio, when a perfectly healthy 42ish year old couple called in asking what benefit amounts they should choose on the group LTCi plan being offered on the husband's job.

The good advice they got was that it was still ok at their age to get LTC insurance, as they had no problem affording the insurance. The radio host then proceeded to discuss the limited benefit choices that they had available with daily benefit amounts and inflation options. He did not discourage them from shopping; the challenge is that they had only until the end of the year to sign up for something, anything, on the job.

The problem I have with his advice is what was left unsaid: that group LTC insurance is almost NEVER a good choice for a reasonably healthy married couple, no matter who the carrier is. WHAT!!!… you say? How can this be?

People seem to think that if it is a group plan, it must be a good deal. After all, isn’t their wonderful health insurance a bargain at work? What people sometimes forget is that their health insurance is subsidized by their employer. They find this out the hard way when they get offered COBRA when they're laid off. Their Long Term Disability plan is certainly a good deal, too, but it goes away when they leave the job.

Long Term Care insurance, in almost all cases except for some executive comp plans, is NOT subsidized by the employer. If you think about it, you are EXPECTED to take it with you when you leave: What good would LTC insurance be if it went away when you retired at 65, or the rates doubled if you left your job, since you are not supposed to need it until you are 83 in general? Therefore, it's a fully portable plan, and you pay 100% of the cost through payroll deduction.

Since the employee pays full price, with maybe a small affiliation discount, the ONLY time group LTCi tends to be a good value is possibly for a single person, or for someone who may have health issues, and thus find it difficult qualifying without simplified or guaranteed underwriting. When the employee has a spouse, or a life partner, they would have to purchase two separate LTCi polices, each with an affiliation discount. However, and here comes the shocker…….when you purchase LTC insurance on the private market, the spouse (life partner) gets up to an 80% discount on his or her LTCi plan. This effectively blows away the rates they would have to pay for two plans on the job. [I should add that there are ways to properly structure group LTC plans that are a good value for couples, it is just that it is not done that often].

There are lots of other reasons that group plans tend to be a poor choice. Lack of “shared plan” options, not being “partnership eligible” (which could stop the government from taking your house one day to settle your LTC debts), and just general lack of options. Group plans offer limited choices to avoid confusing the employee too much.

At the risk of making this post way too long, the best examples I can give are:

■ IBM, unless they recently changed, uses John Hancock as their group LTCi carrier. I have sold John Hancock LTCi policies to IBM employees that had more benefits and cost less than they could get through their job. Now the last I recall, IBM is still a fairly large company, and it should really make you wonder why I can get their employees more coverage than they can. If I only had a list off all the married IBMers who bought a LTCi plan at work for them and their spouse in the last 2 years, I could switch them to a better cheaper policy and probably retire.

■ State of Georgia uses UNUM as their LTCi carrier. I ran numbers for a state employee the other day who was shocked that I can up with a better value than the state program. So, when is a benefit not a benefit?

■ I saw a local Georgia county school LTCi plan that required 3 ADL’s to qualify for payment, yet the standard on the individual market is 2 ADLs. This could be real tough at claim time one day.

■ The Federal plan (not to be confused with the Class Act), for its own government employees, has the exact same problem. How many unknowing married postal workers bought into this plan without realizing their plan was not partnership eligible and they paid too much? I met one a few months ago, and she was not happy.

And I could go on, but remember that even if the plan is cheaper for a single person, it is still not partnership eligible, which could be huge in the future.

Anyway, back to the purpose of the post, the radio host would have given the people better advice if he simply stressed that group LTCi tends to not be a good deal in general for married couples…….and they should IMMEDIATELY go to the open market first and see what else they can find from a LTCi specialist, and not sign up for anything on the job until they completed that task.

Hope this helps someone, and of course there are exceptions to every rule….else consider this a simple public service announcement. Happy holidays.

Thanks Herman, and Happy New Year!
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