Group long-term care insurance is defined according to Delaware regulations as a long-term care insurance policy which is delivered or issued for delivery issued to:
a. One or more employers or labor organizations, or to a trust or to the trustees of a fund established by 1 or more employers or labor organizations, or a combination thereof, for employees or former employees or a combination thereof, or for members or former members or a combination thereof, of the labor organization; or
b. Any professional, trade or occupational association for its members or former or retired members, or combination thereof, if such association is composed of individuals all of whom are or were actively engaged in the same profession, trade or occupation; and such association has been maintained in good faith for purposes other than obtaining insurance; or
c. An association or a trust or the trustee(s) of a fund established, created or maintained for the benefit of members of 1 or more associations. Prior to advertising, marketing or offering such policy within this State, each such association or the insurer of such association, shall file evidence with the Commissioner that the association has at the outset a minimum of 100 persons; has been organized and maintained in good faith for purposes other than that of obtaining insurance; has been in active existence for at least 1 year; and has a constitution and bylaws which provide that:
1. The association holds regular meetings not less than annually to further purposes of the members;
2. Except for credit unions, the association collects dues or solicits contributions from members; and
3. The members of the association have voting privileges and representation on the governing board and committees.
Thirty days after such filing the association shall be deemed to satisfy such organizational requirements, unless the Commissioner makes a finding that the association or associations do not satisfy those organizational requirements; or
d. A group other than as described in the regulations, subject to a finding by the Commissioner that:
1. The issuance of the group policy is not contrary to the best interest of the public;
2. The issuance of the group policy would result in economies of acquisition or administration; and
3. The benefits are reasonable in relation to the premiums charged. 144
A certificate issued pursuant to a group long-term care insurance policy which policy is delivered or issued for delivery must include:
(1) A description of the principal benefits and coverage provided in the policy;
(2) A statement of the principal exclusions, reductions and limitations contained in the policy; and
(3) A statement that the group master policy determines governing contractual provisions.145
Group Long Term Care Insurance has become more “interesting” because of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as for the first time, the taxation of employers who provide Long Term Care Insurance for their employees have been published. Several insurers have entered the Group Long Term Care Insurance business as a result of the Act, but success has been limited so far. The primary provisions of this act involving Group LTC or Employers furnishing LTC Insurance coverage for employees. With some reiteration of these provisions:
NOTE: Please refer to previous Chapter on Taxation of Long Term Care Insurance as it overs the taxation of Group Long Term Care Insurance as well as Individual LTCI policies
In 1987 insurers began offering the first employer-sponsored or group Long Term Care Insurance plans. As has been the case with policies marketed to individuals, insurance companies have both entered and withdrawn from the market since that time. HIAA reports that in 1994, of the 121 companies marketing LTC policies, less than 20% offered employer‑ sponsored plans. Still, the number of employers offering group LTC has begun to rise dramatically, with the most noticeable increase being in small businesses with less than 500 employees.
Many of the employer-sponsored LTC plans in place are located in very large employee environments such as IBM, Ford Motor Company, Proctor & Gamble, and state government employee groups. In addition, most of these plans are not "off the shelf" policies. Instead, they have been designed specifically for a given group through consultation between the employer and the insurance company. As can be seen from the figures above, some insurance companies have begun to target small companies as lucrative markets for their plans, though the numbers show that only a very small percentage of all U.S. employer groups have been affected to date.
For insurance companies and agents, the employer-sponsored market appears ripe. Why, then, are so few insurers involved? Observers generally cite the high cost of entering this market. A significant start-up investment, including case management structures to deal with a myriad of variables in long-term care, is required. With less than a decade of experience in group LTC, insurance companies do not yet have a large body of statistical data to finely hone policy provisions and pricing-factors that can either promote profitability or contribute to high losses. With such a large segment of the employer market untapped, however, this situation is likely to change as those insurers who have decided to stay in this field increase their sales efforts.
Insurer reluctance is not the only factor responsible for the small number of employer-sponsored LTC plans. Employers who aren't exactly scouring the marketplace for additional employee benefits to offer have not yet fully embraced the concept. An agent can be a persuasive force in changing this attitude toward group coverage by promoting the following advantages.
With Group LTC Insurance, some of the conventional features of group plans remain intact while other features are more similar to individual insurance policies. First of all, the policies might actually be individual LTCI policies. If so, the policies are fully "portable" if the employee leaves the plan and need not be converted in the traditional way. Optionally, the employer-sponsored LTCI plan may be set up like other group coverages, requiring employees who want to continue the insurance to convert to individual policies within a certain period after termination. This is called a conversion privilege and not all group insurance plans offer it.
A feature that sets group LTCI coverage apart from other types of group insurance is who may be covered. Most plans are offered not only to employees and their spouses, but also to the parents of both parties and, sometimes, to children and to retired workers. In most cases, employees are exempt from medical underwriting ‑ they won't have to have a medical exam ‑ but it is likely that other family members must have some type of medical screening. Know the requirements for policies marketed because some insurers require medical underwriting for all parties, including employees, while other group plans might not require medical information about any of the parties. In some cases, even if medical underwriting is required, it is less stringent than for individual policies, especially for older parents. The NAIC's shopper's guide encourages older people to investigate their children's Group LTCI coverage if available, indicating that, while medical screening is likely, group coverage might be more advantageous than individual policies.
The age at which individuals may purchase employer-sponsored LTCI coverage is often earlier than the age minimums for individual policies. Typical existing plans specify ages 30, 35 and 40 as the minimums and at least one plan designed by a large corporation is offered to 20‑year‑olds. While there are individual policies insuring at these earlier ages, they are fairly rare. Upper age limits vary considerably, generally similar to individual policies, ages 79 to 85 being typical maximums for purchasing coverage.
Employer-sponsored LTC Insurance may be virtually identical to individual policies marketed. In fact, this would apply to the policy discussed in the Pseudo-Group discussion later in this text. Most offer a range of daily benefit amounts, benefit periods and elimination periods. One should always be aware that in many of the existing plans, the employer has worked with the insurance company to decide on the range of features from which employees can choose.
While the employee makes the final choice, the options available may be pre‑selected and, therefore, more limited than with an individual policy.
As for the availability of other benefits and provisions that are found in individual policies, group LTC plans vary considerably but there is a trend toward including more benefits. Some existing employer-sponsored plans include or make available inflation protection, Nonforfeiture or return of premium features, death benefits, reinstatement, restoration of benefits, home care benefits, and others. Group plans usually pay for care at several levels, have no prior institutionalization requirements, and cover care for Alzheimer's and other organic brain disease. Exclusions and pre‑existing conditions limits are similar to those in individual policies.
Group long-term care insurance issued in Delaware on or after the effective date of this section shall provide covered individuals with a basis for continuation or conversion of coverage.146.
"A basis for continuation of coverage" means a policy provision which maintains coverage under the existing group policy when such coverage would otherwise terminate and which is subject only to the continued timely payment of premium when due. Group policies which restrict provision of benefits and services to, or contain incentives to use certain providers and/or facilities may provide continuation benefits which are substantially equivalent to the benefits under the existing policy. The Commissioner shall make a determination as to the substantial equivalency of benefits, and in doing so, shall take into consideration the differences between managed care and non-managed care plans, including, but not limited to, provider system arrangements, service availability, benefit levels and administrative complexity.147
"A basis for conversion of coverage" means a policy provision that an individual whose coverage under the group policy would otherwise terminate or has been terminated for any reason, including discontinuance of the group policy in its entirety or with respect to an insured class, and who has been continuously insured under the group policy (and any group policy which it replaced), for at least six months immediately prior to termination, shall be entitled to the issuance of a converted policy by the insurer under whose group policy he or she is covered, without evidence of insurability.148
"Converted policy" means an individual policy of long-term care insurance providing benefits identical to or determined by the Commissioner to be substantially equivalent to or in excess of those provided under the group policy from which conversion is made.149
Where the group policy from which conversion is made restricts provision of benefits and services to, or contains incentives to use certain providers and/or facilities, the Commissioner, in making a determination as to the substantial equivalency of benefits, will take into consideration the differences between managed care and non-managed care plans, including, but not limited to, provider system arrangements, service availability, benefit levels and administrative complexity. When the policyholder or certificate holder is no longer in the geographical area of the provider system or available services, the insurer must calculate the financial worth of the group policy and make a cash contribution toward the purchase of any health insurance policy the policyholder may select.150
Written application for the converted policy shall be made and the first premium due, if any, shall be paid as directed by the insurer no later than thirty-one (31) days after termination of coverage under the group policy. The converted policy shall be issued effective on the day following the termination of coverage under the group policy, and shall be renewable annually.152
Unless the group policy from which conversion is made replaced previous group coverage, the premium for the converted policy shall be calculated on the basis of the insured's age at inception of coverage under the group policy from which conversion is made. Where the group policy from which conversion is made replaced previous group coverage, the premium for the converted policy shall be calculated on the basis of the insured's age at inception of coverage under the group policy replaced.153
Continuation of coverage or issuance of a converted policy shall be mandatory, except where108termination of group coverage resulted from an individual's failure to make any required payment of premium or contribution when due; or
The terminating coverage is replaced no later than thirty-one (31) days after termination, by group coverage effective on the day following the termination of coverage providing benefits identical to or benefits determined by the Commissioner to be substantially equivalent to or in excess of those provided by the terminating coverage; and the premium for which is calculated in a manner consistent with the requirements of applicable regulations.
A converted policy issued to an individual who at the time of conversion is covered by another long-term care insurance policy which provides benefits on the basis of incurred expenses, may contain a provision which results in a reduction of benefits payable if the benefits provided under the additional coverage, together with the full benefits provided by the converted policy, would result in payment of more than 100 percent of incurred expenses. Such provision shall only be included in the converted policy if the converted policy also provides for a premium decrease or refund which reflects the reduction in benefits payable.154
The converted policy may provide that the benefits payable under the converted policy, together with the benefits payable under the group policy from which conversion is made, shall not exceed those that would have been payable had the individual's coverage under the group policy remained in force and effect.155
Notwithstanding any other provision of this section, any insured individual whose eligibility for group long-term care coverage is based upon his or her relationship to another person, shall be entitled to continuation of coverage under the group policy upon termination of the qualifying relationship by death or dissolution of marriage.156
(A "Managed-Care Plan" is a health care or assisted living arrangement designed to coordinate patient care or control costs through utilization review, case management or use of specific provider networks.)
If a group long-term care insurance policy is replaced by another group long-term care policy issued to the same policyholder, the succeeding insurer shall offer coverage to all persons covered under the previous group policy on its date of termination. Coverage provided or offered to individuals by the insurer and the premiums charged under the new group policy shall not result in any exclusion for pre-existing conditions that would have been covered under the group policy being replaced; and shall not vary or otherwise depend on the individual's health or disability status, claim experience or use of long-term care services. 156
Another way group LTC Insurance differs from other group coverages is that the rates typically vary by the age of the individual. Although there might be some premium savings over individual policies, this is not always the case, unlike group medical insurance, for example, which may be less expensive than individual medical policies. Depending on the insurer offering the plan, the age of the buyer, and the actual provisions included, group savings might be as little as 2% up to as much as 30%. One major advantage of some employer-sponsored plans, however, is that the premium might be guaranteed for as long as the employee remains in the group, no matter how old he or she is—a real bonus for an employee who can lock in a low premium at perhaps 30 years of age. Not all group plans guarantee rates for life, but in most cases the premiums will increase only if they increase for everyone in the group.
It is important to stress that an agent must learn about the specific details of employer-sponsored plans he/she wants to install in the workplace. Your insurers will provide guidelines concerning policies that may be offered to employers and provide assistance to the agent on customization to meet client needs. However, each insurer probably has certain conditions it will not change, so an agent needs to determine exactly where to be flexible and what provisions are not negotiable prior to making a presentation to a prospect.
Group LTC Insurance may also be offered by an association such as the American Medical Association, the American Association of Retired Persons (AARP), and others at both national and state levels. Association plans, which are available only to members of the particular group, vary as widely as other group plans and LTC coverage in general. Some associations offer more than one type of LTC Insurance policy to members, as is the case with the AARP.
While the AARP policy is written by a strong nationally-known insurer, that is not the case with all association policies, so it is important that both the agent, and the customers know with whom they are negotiating. Buyers are especially warned by consumer advocates to avoid association policies that do not originate with bona fide associations. Unfortunately, a few insurers "invent" associations as a way to sell LTC policies that are cheap in both price and benefits. This is not likely to be a concern for most agents since this type of insurer usually operates by direct mail rather than through agents.
Later in this text, the Pseudo-Group plans are discussed. Associations as discussed here, are examples of “Pseudo-groups.”
Information similar to the following can be provided to an employer, either as part of an informational brochure or as a memorandum. It can be especially useful to Board Members when a Corporate Resolution pertaining to the furnishing of Long Term Care Insurance to their officers and dependents. Please refer to previous discussion in Chapter
F NOTE: Tax Laws change frequently, so the client’s tax attorney should always review information of this type furnished to a client.
PARTICIPANTS:
With closely held companies, the plan is typically provided only for officers, but could be provided to a wider range of Employees. If non top-salaried Employees are covered under the plan, participation should be limited to fewer than 100 Employees if ERISA's full reporting and disclosure requirements are to be avoided.
INCOME TAXATION OF THE PLAN:
Participants in an employer‑paid, Long Term Care
TAXABILITY OF PREMIUMS
Treatment of Long Term Care Insurance premiums, as of January 1, 1997 under the Health Insurance Portability and Accountability Act (HR3103), and that are provided for Long Term Care Insurance for officers and their spouses to cover the costs of an extended stay in long term care, are summarized as follows.
OVERVIEW:
Long‑term care insurance protects the insured against financial hardship caused by an extended stay in a nursing home or similar facility. It was unclear for some time whether such insurance qualified for favorable tax treatment as health and accident insurance under Internal Revenue Code (Code) Sections 104, 105, and 106. Legislation passed in 1996 (Health Insurance Portability and Accountability Act) cleared up the confusion by characterizing qualified Long Term Care Insurance as health and accident insurance making it eligible for favorable income tax treatment under Code Sections 104, 105, and 106.
Insurance plan may exclude from income any premiums paid by the employer for such insurance.157 Employer expenses for Long Term Care Insurance premiums are deductible under Code Section 162 as a business expense.
The employee's exclusion of the premium paid by the employer and the employer’s deduction for such premiums are permitted even if the plan is discriminatory in favor of highly compensated Employees. Benefits payable under the policy are excluded from taxable income as defined in Code Sec. 213 to the extent such amounts reimburse the insured for actual expenses incurred.158
There are significant advantages to an employer‑paid plan because qualified Long Term Care Insurance premiums paid by an employee - instead of his or her employer - may be deducted as medical expenses under Code Sec. 213 only to the extent that the premiums, along with all other non-reimbursed medical expenses, exceed 7.5% of adjusted gross income. In addition, the maximum allowable Sec. 213 deduction for such premiums is further limited by the following amounts that vary by attained age at the end of each tax year:
Attained age 40 and Under— $200; 41‑50— $350; 51‑60— $750
61‑70— $2,000; 71 and above— $2,500
Employers like it because:
Employees like it because:
While there is a true group Long Term Care Insurance product, at this particular time several companies are using an individual product with a discounted rate structure for use within a group environment. There are many names for these plans, so for purposes of this discussion they will be referred to as “Pseudo-Group” plans, as they are actually neither individual or group policies. For those not familiar with “pseudo”, the definition of “closely resembles” is used in this context. Companies may use other terms – one such plan is called the “Affinity” plan (defined as “kinship in general; similarity”) - which is certainly an appropriate term.
There are usually no “discounts” of this type with true group plans but the discounts under the pseudo-group plans will be in the 10-15% range. (True Group may offer other discounts)
While the advantage of using a “True” Group product is that of underwriting, in a group situation, the underwriting is either considerably more liberal and/or individual health situations are not taken into consideration. Depending upon the size of the group, it is possible to have a guaranteed issue product.
Conversely, there are several disadvantages to true group, which may weigh more heavily in considering whether to offer a discounted individual product or the group product.
One of the biggest problems with group products is that the plans are all “boiler-plate” and cannot be customized or individually designed to meet the needs of each individual.
For true group plans, there are requirements that often are difficult of impossible to meet (as any group insurance specialist will state). The most difficult one is that of participation. An insurer will require that a certain percentage of those eligible for the plan, must participate. LTC Insurance has not risen to the level of health insurance, or even group life insurance, to where it is considered as a “necessity.” Therefore, rarely would enough persons enroll for the LTC Insurance coverage, especially if they had to pay for part of the premium. Individual plans sold on a group basis will generally have some sort of participation, but the participation requirements are much lower.
Another requirement is that the employer must participate and pay for part of the premium. Automatically, this eliminates Associations from this coverage. In the environment of high group health insurance premiums, many employers are hard-pressed to offer another benefit to their employees. With the pseudo-group plans, the employer does not have to participate. For example, with true group products, most insurers require at least 10 participants for pseudo-group coverage, as few as three are acceptable. Also, most insurers require that the participation number continues each year and if participation falls below the required number, the plan will no longer be offered. Note, however, that the insured employee will be able to continue with the issued policy on the same basis.
Also, there are normally rather rigid guidelines as to the eligibility of groups. For group underwriting reasons, certain groups would not be eligible for coverage. With an individual product, underwriting guidelines would allow some persons to purchase LTC Insurance.
Most individual policies allow for a Spousal discount, and some plans allow a “preferred” rating for those in very good health. With true group, these discounts would not be allowed, whereas with an individual plan, both the group discount and the Spousal &/or Preferred discounts would be available.
One of the major Long Term Care Insurance carriers offers the pseudo-group type of plan. A review of their product and procedures will help in understanding how such a program works. The insurer also offers a true group product, conveniently making a comparison possible.
In this case, the insurer bases their product on a popular individual product that offers a “modified” guaranteed issue to groups with more than 200 employees (number of employees will vary, depending upon the company’s experience, competition, and market interest).
For an employee to be eligible they cannot have been diagnosed with HIV/AIDS, Neuro‑Muscular Disorder, suffered a stroke or TIA in the last 5 years, have Insulin ‑Dependent Diabetes or limitations in any ADL.
Group (true group) Benefits are limited to:
30-hour full time employees (not actual participants) and 5% discount for groups under 200 members. In addition, this insurer also offers a 10% spousal discount, and a 15% preferred rating discount, plus a 2% list bill discount for groups with over 200 members. For pseudo group plans, the discounts are 10%, plus 10% spousal discount, with no discount for list bill.
For the pseudo group, the insurer required a minimum of 10 applications during the first six months. For true group the insurer has a production requirement of twenty-five applications within the first six months and a total of 50 applications within the first year to continue the program.
Generally, both true group and pseudo-groups (Associations, etc.), cover full‑time Employees (or members) and their spouse who are over the age of 18. The extended coverage is one of the biggest attractions for group and pseudo-group coverage, as some carriers extend coverage to parents, in‑laws, grandparents and retirees.
If an employee terminates, with the true group product, the employee will be able to convert to an individual product and continue the coverage on their own. With the pseudo-group plan, they are automatically portable since the employer does not own them. Also all discounts (except list bill) continue with the contract even upon termination or retirement.
With true group, as with any such group product, generally the commission paid is relatively small in comparison to the individual product. However, even using the pseudo-group plans, will cause a reduction in both the first year compensation and renewal years as well.
For the pseudo-group plans, an endorsement letter and question form must be completed and submitted for approval before beginning the enrollment process with most, if not all, carriers. Once approval is secured, solicitation may proceed, with each submitted application being encoded in some fashion, usually with the specific group number assigned by the carrier.
The Group Discounts provide lower premiums and as such, bears more discussion.
The published purpose of the discount, according to some insurers, would be to help the insurer’s agents reach an additional segment of the Long Term Care Insurance market. In the group and association market the sponsoring group typically wants to offer something to its members that they could not buy elsewhere ‑ such as a special discount. Notice that some emphasis on the discount explanation is on the Association Group market, as contrasted to the employer-employee group market.
For the larger insurers, a 5% “sponsored‑group discount” (as opposed to a true group discount of 10%, and some companies offer 10% for the sponsored-groups also) is available for eligible groups and is available in most states. As discussed earlier, first year and renewal compensation for these products are slightly reduced (“slightly” is not defined).
10% (or 15%, rarely) marital discount is available to applicants who are married and approved for coverage even if spouse does not apply or does not qualify for coverage (this is a liberalization of most individual policies). If both spouses apply for coverage and both are issued and remain in force, each receives a 20% discount (includes marital discount).
Some Long Term Care Insurance companies allow a Preferred Rate Class Discount. Generally, qualifying for the Preferred Rating Class decreases the Standard Annual Premium by 15%.
In order to qualify, one insurer requires that the applicant must be able to answer "NO" to the following questions on the application:
1. Have you ever been treated for or diagnosed as having any of the following: heart disease, emphysema, or COPD?
2. During the past 10 years, have you ever been confined to a hospital or treated by a physician for any of the following?: cancer, hypertension, stroke, osteoporosis (or any bone or joint disorder), phlebitis, dizziness, epilepsy or any type of peripheral vascular disease?
3. During the past 10 years have you been given a prescription for medications to treat arthritis?
4. During the past 10 years have you been diagnosed or treated for alcoholism drug or substance abuse, mental or emotional disorder?
5. Do you now or have you during the past 5 years used any tobacco products, including cigarettes, pipe, cigar or chewing tobacco?
6. Can you walk 4 blocks at a normal pace without any difficulty such as: shortness of breath, dizziness or leg cramps? (Must answer yes)
Applicants should not have any current health problems or take any medications.
All applications will be submitted to the insurance company, accompanied by a check for the amount of the Standard Premium. If the applicant is approved and qualifies for the Preferred Rate Class, a refund check will be issued and delivered with the policy.
For this particular insurer, members of groups, their spouses, parents and parents‑in‑law are eligible when:
Particularly for the pseudo-group coverages, there are many (a multitude, in fact) of groups and associations that would be eligible, such as:
Employers Retiree Associations Travel Clubs
Country Clubs Trade Associations
Professional Associations Churches
Fraternal Organizations Credit Unions
With any insurance company, there are certain procedures to be followed in order to take an application for group long-care insurance. As a general rule, companies will require that:
Generally. the Insurer’s LTCI Marketing Department approves the discount after determining that the group meets the sponsored group discount criteria:
1. The group was formed for purposes other than obtaining insurance.
2. The group will generate at least 10 (+ or - )paid policies.
3. The group will indicate its sponsorship to members in writing.
The agent who brings the group to the insurer will have an exclusive on the group and the discount with the following exceptions:
If another agent licensed with the insurance company, has an existing client who is a member of this group, but who has not yet purchased the insurer's LTC Insurance policy, the agent can offer the group discount without going through the "exclusive" agent.
If a policy is replaced, and it is replaced by the original writing agent the agent will be charged back the difference between standard first year commission and the lower sponsored group discount.
If it is replaced by the "exclusive" agent (which is discouraged and done only at the request of the client) renewal commission will be paid.
This form will vary from company-to-company, but a sample of an insurer’s form is provided here as an illustration.
Employers are finding that sponsoring group Long Term Care Insurance shows concern for the welfare of their Employees and helps to build morale and loyalty. Yet it is easy to administer and does not put pressure on employee benefit dollars.
With the passage of the Health Insurance Portability and Accountability Act of 1996, the federal government now provides special tax incentives for employers who offer Long Term Care Insurance . Employers may now deduct premium paid on behalf of Employees as a business expense, the same as they do for medical insurance. Employers may also pay premiums for selected classes of Employees (i.e. as part of an executive compensation package) without being required to pay the premiums for all Employees.
In addition to the above-illustrated points, the education of the employer (or head of the Association, etc.) is the most important step in marketing these products. Most insurers will furnish material that can be used for educational purposes, most prepared in a professional manner. Basically, the outline the advantages to the employer of LTCI, such as what Medicare does not provide for long-term care, the restrictions on Medicaid, and the lack of long-term care in their medical plans.
This should be followed up by information in respect to the tax ramifications to the employer and the employee.
Other assistance from the insurer’s Home Office is usually provided. Some companies have their own Enrollers, with others it is the responsibility of the General Agent. A few (very few) companies have installed a computerized method whereby each enroller uses a laptop computer to enroll the employee. The information submitted is sent electronically to the Home Office at the end of each workday, thereby allowing for immediate enrollment. If underwriting is needed, this speeds up that process tremendously.
A toll-free telephone number is important, and the Home Office should be ready for numerous inquiries by employees and their relatives, both during the enrollment period and afterwards.
The discussion of Group LTC Insurance has been primarily on the individual policy sold on a group basis, with certain distinctions as shown above. The following information pertains to Long Term Care Insurance sold on a (true) group basis. The details are of a plan offered by a major insurance company and should not be considered as an industry “standard.” Also, this plan has been offered for more than a year, so some changes will probably already be made, however, they should not be significant.
Also, please be aware that the plan outlined herein is a “Preferred” plan that has somewhat more liberal benefits than another plan that is also available from this company. The “Preferred” plan is discussed, as experience has shown that benefits increase and become more liberal as more experience in this field is gained and actuarial statistics are verified through actual claims experience, plus the ever-encroaching of the Federal government.
The eligibility criteria are typical of most companies in the group LTC Insurance market. The following individuals would be eligible for coverage under an endorsed group Long Term Care Insurance plan.
Employees
Full‑time (30 hours minimum) Employees who are actively at work. Also, regular part-time Employees may be eligible for this benefit if other benefits are typically offered to them.
Spouses of Employees
Spouses of Employees may apply even if the employee does not participate.
Retirees and Spouses
Retirees and their spouses under 80 years of age may apply.
Children of Employees
Children of the employee or member are eligible to participate.
Parents, Parents‑In‑Law, Grand Parents and Grand Parents‑In‑Law
The most unusual feature of Group LTCI is that parents, parents‑in‑law, grand parents and grand parents‑in‑law may apply even if the employee or spouse does not choose to participate. (Companies may have some restrictions or qualifications if this feature is offered). This broad eligibility should create anti-selection, as it would appear that any employee, who has an elderly parent or grandparent, etc., would want the insurance, especially since the employee does not have to participate. Therefore, the premiums must be actuarially structured to compensate for this contingency.
Billing is a little different than usual group health insurance, and is specifically stated as it is anticipated that the plans will be portable when the employee leaves or retires (Delaware regulations so require). The insurer provides direct billing for terminated Employees and their spouses, divorced spouses, retirees and their spouses, parents, parents‑in‑law and grandparents. Employees on leave can also be direct billed. The insurance company bills quarterly, semi‑annual or annual modes. There is no charge for direct bill. A grace period of 30 days is extended when premium is not paid.
The insurance company that offers this particular issues for ages 18 to 84, with some restriction of benefits for those ages 80-84. Other insurers may have different eligibility age rules.
A certificate issued pursuant to a group long-term care insurance policy which policy is delivered or issued for delivery in this State shall include:
(1) A description of the principal benefits and coverage provided in the policy;
(2) A statement of the principal exclusions, reductions and limitations contained in the policy; and
(3) A statement that the group master policy determines governing contractual provisions.
Again, using this particular company’s policy and rules, the following coverages are offered. Other policies may offer more liberal or restrictive benefits.
The qualification for benefits follows the HIPAA guidelines by offering the following two ways to qualify for benefits:
As with most LTC Insurance policies, the Benefit Periods are expressed as days with explanation as to number of years. This is typical of a “Pooled” policy, as the amount of the Pool is calculated as the number of days (Benefit Period) times the Daily Benefit. Using a stated number of days eliminates any difficulty in calculations, such as providing for leap years.
Ages 18 ‑ 79: 730 times (2 years), 1095 times (3 years), 1460 times (4 years), 1825 times (5 years) the LTC daily benefit amount or Unlimited. Ages 80 ‑ 84: 730 or 1095 times the LTC daily benefit (1460 and Unlimited times are not available.)
Deductible Periods follow those in Individual policies. This particular insurer has restrictions on Deductibles at the older ages, and with the 730-day (2 year) policy. The employee may select the number of consecutive days at the beginning of their covered stay and before the benefit payments actually begin.
The Inflation Benefit requirement as described in the discussion of individual policies, pertains to Group or individual policies. Where the policy is issued to a group, the required offer in section 13.1 above shall be made to the group policyholder; except, if the policy is issued to a group as defined in the regulations, other than to a continuing care retirement community, the offering shall be made to each proposed certificate holder. 13.2
One insurer specifically offers “Condominium” based care benefits, attractive to many elderly retired persons. Originally, this was unique because there were no previous-care requirements. Under the recent regulations in Delaware and most states, these restrictions are unlawful.
Requirements for benefit payment is the same as under individual policies—Inability to perform two of six specified activities of daily living, or Cognitive impairment.
Covered services are those that are provided by a licensed or accredited home health care agency and adult day care center, and follow a plan of treatment established by the physician.
Some group LTCI plans are quire liberal in providing for home health care services and may offer more benefits that available under individual policies.
Under the insurer’s Alternate Plan of Care provision, if the insured, their doctor and the insurer agree, then the insurer will pay for medically appropriate services and supplies in another setting when a nursing home confinement would otherwise be required. It should be emphasized the Alternate plan Alternate Plan of Care is a completely voluntary program.
If the insured is confined in an alternate care facility, the insurer will pay the insured a percentage of the expenses incurred, ranging up to 100% depending upon the state, up to the nursing home daily benefit amount, for each day for care received in an alternate care facility, which occurs after the long term care elimination period, and before the specified lifetime maximum dollar amount is reached.
The Bed Reservation Benefit is usually provided wherein if the insured is hospitalized or temporarily leave during a covered stay in a nursing home, the insurer will continue to pay the insured’s benefits or credit their elimination period for up to 21 days per year to cover charges or to reserve the insured’s accommodations. Unused days cannot be carried over into the next calendar year.
Respite Care Benefit is generally provided wherein the Insurer will pay up to the nursing home daily benefit for respite care in a nursing home or alternate care facility, and up to the home and community‑based care daily limit for respite care in a residence or adult day care center. The Insurer will pay for up to 21 days in a calendar year and benefits will be payable during the elimination period. After the insured reached their elimination period, respite care will not be paid in addition to the daily benefit amount.
The Medical Help Benefit is a newer benefit, and offered by only a few of the major insurers. The insurer will pay the actual expenses incurred, up to 25% of the home and community-based care daily benefit amount for the rental or lease of a medical help system for the insured’s home during a plan of treatment. This benefit is limited to a system installed in the home while the policy is in effect and to a maximum of 12 months during the insured’s lifetime.
This is a popular benefit which states that if the insured requires long term care or home and community based care, the insurer will pay 100% of the expenses incurred for caregiver assistance training, not to exceed five times the home and community based care maximum daily benefit amount. Some companies allow family members to take the caregiver training and some specify a dollar amount (usually $500) for the training.
The Pre-existing Condition requirement has become popular in Long Term Care Insurance policies, and in effect, are quite liberal compared to other health insurance products. Conditions that are disclosed on the application are covered immediately. Pre‑existing conditions not disclosed on the application may be covered if confinement begins at least six months after the start of coverage under the policy. However, if important medical information is omitted from the application, the policy may be voided.
Large groups may not have any pre-existing condition limitations. For the smaller groups, the following regulation applies: “No long-term care insurance policy or certificate, other than a policy or certificate there under issued to a group as defined in these regulations, shall use a definition of "preexisting condition" which is more restrictive than the following: "Preexisting condition" shall mean a condition for which medical advice or treatment was recommended by, or received from a provider of health care services, within 6 months preceding the effective date of coverage of an insured person.”159
If a long-term care insurance policy or certificate contains any limitations with respect to preexisting conditions, such limitations shall appear as a separate paragraph of the policy or certificate and shall be labeled as "Preexisting Condition Limitations."160
The Waiver of Premium is more liberal with the “Preferred” plan as it does not require that the insured be confined in a Nursing Home. Waiver of Premium begins when the insured receives 12 days of covered care or services (Long-Term Care Facility stay and/or Home and Community‑Based Care) ‑ in a quarter. The initial 12 days need not be consecutive, but must be incurred within a 90‑day period.
The Waiver of Premium must be described in the Outline of Coverage, and if there is no such provision, that must be spelled out also.
F In keeping with the stated Guaranteed Renewable provision, the policy premium will never increase because of age or health of the participants individually. In keeping with the concept of a “true” group, premiums may be raised or lowered, depending upon the claims history of the group as a whole.
The Spousal discount with this plan differs from the plan earlier discussed and is more typical of individual and group policies inasmuch as both insured and spouse must be approved for coverage. If both the insured and spouse apply for a Long Term Care Insurance policy at the same time with the insurer, and are both approved for coverage, the insured will receive a 10% premium discount on both policies.
The Long Term Care Insurance plan from the insurer does not include benefits for the following:
STUDY QUESTIONS
1. One of the differences between Group LTCI and other Group plans is
A. Group LTCI insurance is more restrictive as to who can be insured.
B. Group LTCI allows parents, grandparents and sometimes in-laws to be covered.
C. Group insurance costs more than all other Group insurance benefits combined.
D. only securities-licensed agents can sell the plan.
2. Group Long Term Care Insurance
A. may be less expensive than individual policies.
B. is not available for groups under 50 employee participants.
C. policies have the same identical benefits as individual LTCI policies.
D. does not cover Skilled Nursing Care.
3. Employers who pay LTCI premiums on behalf of an employee
A. are actually contributing to a widows and orphans fund.
B. can deduct the premiums from each employees Social Security taxes.
C. are called non-contributory employers.
D. can deduct those premiums as a business expense.
4. Long Term Care Insurance premiums for the self employed.
A. are not tax deductible.
B. are tax deductible only for the amount that exceeds 7.5% of the AGI.
C. are tax deductible within the overall self-employed deductible limits.
D. are taxed at capital gains rates.
5. The ABC Widget Co. has a Section 125 (Cafeteria) plan for their employees. It wants to add a group Long Term Care Insurance plan to their benefit package on a non-contributory basis.
A. The premiums paid by the employer will be deductible from Social Security taxes.
B. Long Term Care Insurance is not permitted under a Section 125 plan.
C. Long Term Care Insurance will be treated the same as short-term disability and other plans marketed under the Cafeteria plan.
D. Benefits payable to the insured will be considered as earned income.
6. The difference between “Pseudo-Group” and “True Group” LTCI plans is
A. True Group plans allow for coverage of all family members.
B. that Pseudo-Group is basically individual policies sold to a member of a group or association and the employer/group does not have to contribute to the premiums.
C. Pseudo-Group LTCI is sold only to employers and is subject to participation and contribution rules.
D. True Group LTCI premium is about twice the True Group premium
7. LTCI benefits received under a group LTCI polan
A. are not taxable to the employee.
B. are taxable to the employer.
C. are taxable to the employee.
D. must be paid directly to the nursing home.
8. A Subchapter “S” Corporation purchasing LTCI for an employee
A. is not allowed to take the premiums as a business expense on their tax forms.
B. for tax purposes, is treated the same as a Partnership.
C. is treated the same as an individual would be for tax purposes.
D. is not allowed to purchase LTCI for employees.
9. If a Group LTCI plan pays an employee $5,000 for a 30-day period of chronic illness,
A. for tax purposes, it would be treated the same as if it were a Partnership plan.
B. this is called a Per Diem contract and periodic payments are excluded from the insured’s income up to a certain cap.
C. this is called a Per Diem contract and the entire amount received is excluded from the employee’s income.
D. the entire amount is considered as ordinary income for the employee for tax purposes.
10. Employers like providing long term care plans to employees because
A. it is easy to administer and implement and it increased productivity by lessening the demands of eldercare on employees.
B. the employer is not allowed to consider the premiums they pay as a business expense.
C. benefits are paid directly to the employer.
D. discrimination laws do not apply to Group Long Term Care Insurance.
ANSWERS TO STUDY QUESTIONS
1B 2A 3D 4C 5B 6B 7A 8B 9B 10A