Group Long Term Insurance - Essay Example

Group long term insurance Introduction Group long term insurance is an insurance coverage offered to a group of people like employees of a certain company. The coverage provides benefits to the dependants if the individual covered dies before the expiry of the coverage period. They are cheaper than individual long term insurance. They may be offered by employers and are tax-free to employees and tax deductible for employers who bear the premium expenses. Group long term insurance care started in the 1980s. Long term insurance cover to individuals was characterized by high premiums and limited benefits therefore many companies had to think of group long term insurance as an employee benefit (Wiener and Illston 66). Employer-based group long term insurance is an essential comprehensive benefits package that offers long term insurance to the employees (Wiener and Illston 66). Reasons for use There are numerous advantages for enrolling in a group long term insurance since the patient does not need to meet any medical requirements before obtaining the group long term policy cover. The relatives and immediate family members of the individual may also be covered, since many group long term care policies allow the retirees and spouses to apply for the long term care coverage. If the group long term insurance consists of a high proportion of relatively younger employees, the insurance provider will be able to charge lower premiums compared with the individual long term plans (Beam and McFadden 357). Group long term insurance helps protect the employee retirement plans. Well informed employees understand that without a Group long term care, medical expenses after retirement can adversely deplete the employee portfolio of assets (Beam and McFadden 369). Some Group Long term insurance policies enable employees to receive benefits and care from any place in the world. The Group long term insurance eases the emotional and physical burden of the family members since they are involved in the care-giving process but are not the primary providers. Group long term insurance covers the costs of care received at home, in the community and also in the nursing homes (Beam and McFadden 378). There are various benefits that accrue to employers who provide Group long term care to their employees. The employer is able to retain the most qualified and skilled employees in the company therefore reducing production losses associated with work stoppages (Beam and McFadden 357). Group long term insurance acts as an incentive of attracting and hiring new employees in the Company. The insurance cover offers the employer a competitive edge since it is an alternative to increasing salaries (Long Term Care Insurance 2). The employees will also receive additional benefits from the Group long term insurance since other programs like training of caregivers and care providers are included in the insurance plan. The employees also receive assistance on claim filling and can enjoy other wellness programs that may be incorporated in the Group long term insurance (Long Term Care Insurance 3). Administration and process All the insurance products for group long term insurance are consistent with Long term Insurance Model Act. HIPAA has imposed several standards that have led to increase in the coverage. The Act has reduced the revenue losses associated with coverage due to changes in the income tax codes. For eligibility to favorable tax treatment, the insurance contract should be qualified therefore contract is guaranteed renewable and all the refunds of premiums and dividends are applied as future reductions in premiums or to increase the future benefits (Beam and McFadden 360). The cost of the group long term insurance is covered by the employee. The initial premiums are calculated on five year age period brackets and increase significantly with the increase in the age of the employee (Wiener and Illston 65). Most of the States require the insurance companies to protect the benefits of employee from inflation therefore benefits increase periodically according to the consumer price index up to the annual maximum. Some group long term care plans provide benefits for unlimited period but others limit the benefits and the period of coverage (Beam and McFadden 357). However, group long term insurance involves high administration costs due to high costs of collecting actuarial data of all the members in the plan. The group insurance may also have restricted benefits. Group long term insurance is necessary for preventive, curative, therapeutic and rehabilitative services that may be required by old and terminally ill employees. Eligibility for coverage includes the requirement of full-time employee who is active at work or their spouses. Other policies may cover retirees, parents and children but there is a maximum age of 85 years for eligibility but it sometimes may be varied to a higher age (Beam and McFadden 355). The initial group long term insurance was written in 1987 but the growth has been slow due to inadequate actuarial data for pricing and designing of the group insurance policies. Another factor that has slowed the growth of the group long term insurance is the taxation of the employer funded benefits like the medical expenses benefits. However, the Health Insurance Portability and Accountability Act (HIPPA), ensures favorable taxation of the long term insurance benefits. The entrance fee may not be refunded when the employee leaves employment or dies (Beam and McFadden 355). No matter the structure and nature of the company, Group long term insurance offers tax benefits to both the employer and employees. There is no premium deduction since full premiums paid are not attributed as income to the employee. For corporations, the entire amount of premiums is paid by the employer and is not attributed as income to the insured who are the employees (Long Term Care Insurance 3). Conclusion There are numerous issues and barriers that have been raised on Group long term insurance. One of the issues raised is the large number of employer-based plans that have been sold without automatic compound inflation protection to the younger employees. Many policy makers assert that future claimants of Group long term insurance may not have enough coverage relative to the service costs (Rivlin and Wiener 70). However, it appears the buyers have ignored inflation protection and concentrated on seeking lower premiums. Another issue concerning the Group long term insurance is the premium increase and ignorance of claims by the insurers. This has been occasioned by the fact that policyholders had bought their cover at lower premiums when the Group long term insurance sector did not anticipate high costly claims in the future (Rivlin and Wiener 70). Another barrier of Group Long term Insurance is the ageing workforce. More than half of the workforce is aged between 40-50 years which translates to increase in the premiums to employers. Lifestyle issues like smoking and unhealthy eating habits have increased the diet related diseases thus forcing the insurance companies to adjust their premiums upwards. Another challenging issue is discrimination in the coverage since some insurance companies are not willing to cover the aged employers especially women of more than 60 years. Another barrier to the group long term insurance is the lack of sufficient information in the planning stage. The insurance companies may not fully understand the costs and the risks in the employee group due to insufficient data (Rivlin and Wiener 70). For partially funded group long term insurance, the coverage has been slow due to the widening gap between the rich and poor. The low income levels coupled by the recent global meltdown have adversely slowed the contributions to the partially paid group long term insurance (Rivlin and Wiener 70). Recommendations The insurance companies should not set low premium rates in order to attract customers but should search for adequate data and information in order to diligently analyze the associated risks and costs for the insurance cover. The insurance companies should ensure benefits are protected against inflation therefore proper forecasting and planning is needed. The Group long term insurance policies should be accompanied by other wellness programs in order to reduce the associated risks and high claims. The insurance regulatory authorities should enact non-discriminatory laws that ensure coverage of all groups of employees regardless of their medical conditions or age. Works cited: Beam, Burton and McFadden, John.Employee benefits. Chicago. Real Estate Education. 2001. http://books.google.co.ke/books?id=ud2vcP8sQCoC&pg=PA63&dq=administration+Gro up+Long+Term+Insurance&hl=en&sa=X&ei=t6liT5OUKOmRiQfj9LX4BQ&ved=0CE UQ6AEwAQ#v=onepage&q=administration%20Group%20Long%20Term%20Insuranc e&f=false http://books.google.co.ke/books?id=yN9vHhgi5lQC&pg=PA353&dq=Group+Long+Ter m+Insurance&hl=en&sa=X&ei=ipxiT5HHKKGViQfN78HZBQ&ved=0CEIQ6AEwAA v=onepage&q=Group%20Long%20Term%20Insurance&f=false Long Term Care Insurance.Group long term care. Web. 17th March 2012. From http://longtermcareinsuranceinfo.com/group-long-term-care/ Rivlin, Alice and Wiener, Joshua. Caring for the disabled elderly: who will pay? Washington, D.C. Brookings Institution. 1988. http://books.google.co.ke/books?id=BEJVl2E6ZzkC&pg=PA68&dq=barriers+of+Group +long+term++insurance&hl=en&sa=X&ei=2WFkT_WsKoyUmQX08vWQCA&ved=0C D4Q6AEwAA#v=onepage&q=barriers%20of%20Group%20long%20term%20%20insur ance&f=false Wiener, Joshua and Illston, Laurel. Sharing the burden: strategies for public and private long term care insurance. Washington, D.C. Brookings Institution. 1994. Read More