Targeting Group Long-Term Care
The Enormous Opportunity in Employer- Funded Group Long-Term Care Plans
by John Noble

Sales of employer-funded long-term care insurance are growing steadily in the United States. There is enormous market potential for this relatively new product group. The Senate Special Committee on Aging estimates that nearly 10 million people need long-term care today. Yet only 9% have purchased long-term care insurance, according to a Wall Street Journal/Harris Poll.

Group long-term care plans are giving employers a competitive edge in attracting and retaining employees in California’s tight labor market. The critical need for long-term care coverage is most apparent among Baby Boomers (born between 1946 and 1964).

A 2007 LIMRA International study reveals that more than 9,000 employers, representing 2.1 million individuals, are now covered by group long-term care insurance. New sales grew 16% and the number of new plan participants grew 20%. Group long-term care insurance represents more than $1.5 billion in annual premium.

California’s Enormous Potential

A group long-term care insurance plan can be written for as few as 15 employees, which makes California a burgeoning market. There are more than 1.2 million businesses in the state -- 114,000 of which have 20 to 99 employees, according to the California Development Dept. Only about 10% of these employees have long-term care insurance.

Sales Trends

Industry leaders note a significant increase in the number of employers that are willing to help pay for a long-term care benefit, according to an Unum study. Employers provided some premium contribution in 92% of cases in 2007.
Here are some market statistics:
• Women represent 52% of the purchasing population.
• More than 52% of purchasers are under 45.
• Forty-three is the average purchase age in the group environment, while 57 is the average age in the individual market.

Employer Profiles

Employer-funded long-term care insurance is still unusual in the industry, but more and more companies are adding it to their benefit packages. These companies are committed to offering and funding the most up-to-date benefits and they already have their medical, disability and retirement plans in place. However, they recognize a gap in their benefit packages. An employer that has three employee benefit products with good participation is likely to promote a new benefit to employees and make it successful.
These prospective buyers have a benefit-savvy employee population, a propensity to fund a base plan, a history of high employee participation, and an employee base that likely falls in the Baby Boomer demographic. The prime target markets for group long-term care are predominantly in the service segments of business, such as the following:
• Banks & credit unions
• Consulting firms
• Doctors’ groups
• Engineer/architects
• Financial services
• Law firms
• Software professionals

Employer Benefits – Inexpensive & Minimal Administration

Group long-term care insurance is relatively inexpensive for employers in the target service markets. Administration is straightforward, rates are stable, and there is minimal claims activity. Discounts can be as high as 20% depending on case size and package discounts.

One of the strongest selling points is that it is not necessary to have 100% participation. Only a certain percentage of employees must participate in the plan for the employer to qualify for the discounted employer-funded rate structure.

Another advantage is that group long-term care insurance is considered a business expense. Other employer-funded benefits can have negative tax implication for employees. Employers and brokers must stress that the money an employee gets from a long-term care claim is tax-free and is not treated as imputed income. “Imputed income” is the term the IRS applies to the value of any benefit or service that should be considered income for the purposes of calculating your federal taxes. For example, the value of employer provided life insurance coverage greater than $50,000 would be treated as imputed income.

When employers do a good job of promoting this benefit, employees get more interested and participation increases. Some employers that funded a base plan and did proper in-house promotions have seen participation double.

Broker Benefits: Fill the Void

Brokers can be particularly successful with employers that offer a package of employee benefits. Many of these employers provide excellent retirement packages. Buy, this future income can be eroded quickly, if not depleted, if the need for long-term care arises.

The single most attractive feature of this coverage may be its modest cost to the employer. An employer can fund a base long-term care insurance plan for just $15 per month or $200 to $250 per year per employee. Employees can also buy additional coverage for themselves or eligible immediate and extended family members. Employers have the opportunity to meet a critical future need for employees with minimal administrative burden.

Plan discounts are also used as incentives for employers to offer employer-funded group long-term care insurance benefits. The criteria for offering discounts is case size (the number of employees) and package discounts when the employer is offering multiple products from the same company.

Almost 50% of employers that offer group LTC insurance said if they had to do it all over again, they would focus on improving employee communications during initial enrollment, according to a U.S. Dept. of Health and Human Services survey. Education is the key to the success of group LTC insurance plans. Company representatives need to educate brokers and brokers need to educate employers and their employees.

Group long-term care insurance is not a hard sell once a broker is in the door of a pre-qualified prospect. Employers are becoming increasingly aware of LTC needs. In addition, inclusive and affordable policies and better information about the need for coverage are promoting the growth in sales.
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John Noble is director of long-term care insurance for Unum. He can be reached at jnoble@unum.com.