LTC Tree Study Finds the Majority of Group Long Term Care Insurance Plans Don’t Meet State Partnership Requirements

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Though Group Long Term Care Insurance plans can be appealing, the employer offered group plans might not be as beneficial as they seem, cautions long term care experts LTC Tree. A new study by LTC Tree found that the majority of group plan offered don't meet state partnership requirements.

Every one from teachers to corporate employees at Fortune 500 companies are being offered a new workplace benefit called Long Term Care Insurance, designed to help cover health expenses in retirement. Though appealing, the employer offered group plans might not be as beneficial as they seem, cautions long term care experts LTC Tree.

In a study conducted by the LTC Tree analytics department, 61% of group Long Term Care Insurance plans were quoted with a feature called guaranteed purchase option instead of automatic inflation protection. The policies with “GPO” (Guaranteed Purchase Option) are typically much less expensive initially, but become more costly over time due to increasing premiums as the policyholder ages.

“Compounding the problem,” says Drew Nichols of LTC Tree, “is the issue that the majority of these group Long Term Care Insurance policies don’t even meet the basic state partnership guidelines, which offers potential Medicaid asset protection.” This oversight could cost policyholders who buy their plans from their employers hundreds of thousands of dollars should they end up needing care above what their policy provides. Most states require that policyholders under age 61 purchase a compound inflation protection to qualify for state asset protection, yet this benefit is overlooked by most workplace policies, or offered as an option without any context or explanation.

Long Term Care Insurance is a relatively new and complex topic that even many of the most astute human resource officers at large companies don’t fully understand. Corporate benefit representatives from insurance companies may come in and make suggestions for employee policies without considering the broader implications of partnership coverage and long term premium stability for the policyholders.

According to LTC Tree analytics, the average 50 year old will pay $1205 in the first year of premiums for a policy with guaranteed purchase option and benefits totaling $273,750. For a policy with 3% compound inflation protection, the same 50 year old would pay approximately $1856 in the first year of premiums for the same total benefits.

Because policies with inflation protection are around 51% more expensive in the first year of premiums paid, many people will forgo this feature and choose guaranteed purchase option, instead. In reality, though, when you choose guaranteed purchase option and opt to increase your benefits when given the chance, as most people do, your new premium rates increase based on your current “attained” age, not the age at which you originally applied.

Somewhere around the eighth year of paying premiums, those policyholders who chose the GPO plan will already be spending more in premiums than those who chose inflation protection. Many people discover this problem only after it is too late. Because inflation protection raises the value of your benefits annually to keep pace with inflation, the return on investment is actually much higher. Most long term care benefits are paid decades after retirement, making policies with guaranteed purchase option a less than optimum choice for purchase in the workplace.

Group Long Term Care policies do have their place. Those who can benefit from these group plans are often the less healthy employees who might otherwise not be able to qualify for coverage within a private market, but are able to acquire it during the open enrollment period. The healthier employees at the company effectively subsidize the premiums of these less healthy employees.

For the healthier employees, though, it makes sense to shop with a private Long Term Care Insurance marketplace like LTC Tree and potentially find better benefits for a lower cost. It may be that the policy sold at work is indeed a better deal, but it pays to research your options and understand the differences in cost over time, because most people don’t use their benefits until much later in life.

LTC Tree is an Atlanta-based nationwide network of licensed agents whose goal is to help educate people about their Long Term Care Insurance options with no face-to-face sales meetings. We help clients shop all the major companies to find the best plan at the best price and strive to give consumers a laid back, no pressure process of buying insurance.

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Darrick Wilkins
LTC Tree
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