Scroll down for a discussion on LTC Discounts vs. Rebating within the Long Term Care Insurance Forum.
The following issues appear to be appropriately addressed as part of market conduct:
1) Discount (often 10%) offered on purchase of a second individual contract ...
The following issues appear to be appropriately addressed as part of market conduct:
1) Discount (often 10%) offered on purchase of a second individual contract by the spouse. The discounts affect individual coverage based upon another individual contract. As these are issued on individual policies, this conflicts with the entire contract provision. It is also an unlawful rebate resulting in unfair discrimination, as the rate differs for two otherwise identical individuals of the same risk class.
The 10% savings can be actuarially justified, but the purchase requirement is illegal. This is more appropriately done via issuance of a joint contract. Or, the insurer can underwrite both spouses, not require both contracts to be issued to get the discount.
2) A discount is offered for groups of individual policies. Issuance of a list-bill policy for less premium than the same individual would otherwise be charged would be unlawful unfair discrimination, and an unlawful rebate. Fair discrimination is based upon actuarial risk classes, not expense or commission differences.
If this were done via issuance of a group contract, it seems appropriate.
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I thought this WAS a real job!
Actually, multi-policy discounts are standard, especially with P&C policies. Even in health, you stop charging more after you get past a couple of children.
If it's approved by the DOI and is actuarilly sound, it will fly and is not rebating. I'm sure they've been able to show the cost of writing and maintaining a couple for LTC is at least 10% less than writing individual.
Most DOIs don't look at rebating (or unfair discrimination) in filings. They wait for market conduct exams. Approval by DOI just means you can sell, not that everything in it is legal.
LTC claim costs are about 10% lower for married people. Insurers can offer 10% off if a person is married (i.e., living with spouse), if they don't insist on sale of the second policy. But they can't offer a discount based solely upon sale of a second policy--that's rebating.
Suppose Mr. Jones has a single LTC policy from XYZ Co. Agent from ABC Co. sells a single LTC to Mrs. Jones. Each should get 10% off.
If ABC is caught replacing XYZ policies for a discount, the state DOIs will get complaints from XYZ agents about twisting, rebating, and unfair discrimination until ABC quits.
IMHO P&C carriers offer discounts if you place all your P&C through the one carrier under an "Uumbrella Policy" which I think John P. ia referring to above.
Rebating/discount/unfair discrimination laws apply to LTC & life/health differently than P&C. P&C laws push discounts for multiple-line coverage, especially where coverages might overlap.
Life & health insurance laws don't allow expense/commission differences to be passed to the consumer. These laws were initially adopted to prevent 'big' clients from getting a better deal than 'little' clients when the risks were the same. LTC risks are measured on individuals, who are supposed to be charged the same rate by health risk, not size or affiliation.
For a husband & wife, joint coverage has always been considered under the same life/health laws as individual coverage (rather than group). If their policy is issued jointly, a rate 10-40% below the rate for two individual policies could be justified (without violating rebating or unfair discrimination laws). If one of the two doesn't want coverage (or doesn't qualify), the company might still justify a 10% discount on the individual policy, as long as there is no requirement to buy a 2nd individual policy.
Some carriers just issue two policies with discounts. If living with or being married to each other is the only requirement, this could also be justified, if the discount is based upon risk factors (i.e., not commissions or expense savings). It wouldn't automatically violate the law if the 2nd purchase isn't required.
Med Supp, as well as LTC, often includes a spouse discount. It seems the risk is lower, possibly due to living together. But some limit the discount to those who purchase two individual policies from the same company.
This hurts the people who lose due to unfair discrimination. They pay extra premiums even though they're buying the same insurance. Buyers don't know they're being cheated, and usually feel powerless to stop it.
Suppose a carrier will only give Joe a discount if his wife buys Med Supp from them. If Joe's wife is only 60, or already bought a policy from another company, she doesn't need it. Joe is cheated out of the discount.
In addition, the company rate has a minimum legal loss requirement. They don't meet it for the people who don't get the discount. Married people whose spouses don't buy a policy are charged illegally excessive rates.
Suppose Joe's wife buys a policy, so he gets the discount. If she drops it, he loses the discount. His contract has been improperly changed by his wife's contract (despite the entire contract provision).
If married people get a discount, Joe should. It shouldn't matter whether his wife buys from the same company. Carriers need to protect Joe's rights.
It's not illegal until it has been challenged in a court of law and found to be so. So what's your point, anyway?
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Driving 60 in a 55 zone is illegal, whether or not you get a ticket. Breaking the law is not "OK as long as you don't get caught." Unfair discrimination is a violation, and hurts people, even if it's never challenged.
When somebody buys insurance, they're supposed to get the best rate the company can offer for their risk class. It shouldn't matter whether they get their spouse to buy it, or buy it at work from a list-bill specialist, or from a discount broker. Everybody with the same risk should get the same deal.
Driving 60 in a 55 zone is illegal, whether or not you get a ticket. Breaking the law is not "OK as long as you don't get caught." Unfair discrimination is a violation, and hurts people, even if it's never challenged.
When somebody buys insurance, they're supposed to get the best rate the company can offer for their risk class. It shouldn't matter whether they get their spouse to buy it, or buy it at work from a list-bill specialist, or from a discount broker. Everybody with the same risk should get the same deal.
You answered your own question/statement. Discounts are a result of risk-reduction, cost containment for carriers, resulting in rate reduction against future claims and lower reserve requirements. Spousal discounts are offered simply because the presence of a spouse/partner in the home reduces the likelyhood of early "facility care" requirements...simply put, the claimant stays in the home for care (less expensive care) much longer than a single claimant with no one there to assist in care needs. It's basic claims experience modeling.
So, the married couple "is" getting the lowest possible cost.
Is it really fair to the married couple if they get no discount for being a more favorable risk? I prefer to get the lowest, most accurate cost that "I" earn based on my personal insurabilty assessment. I certainly don't want to pay the same rates as a rated class individual when I'm a Preferred Risk.
Lower rates for married individuals are justifiable. But some carriers won't reduce the rate unless both my wife and I buy a contract from the same carrier. If I buy a contract, and my wife doesn't, it doesn't change my risk, and shouldn't affect my rate.
LTC Discounts vs. Rebating
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