Long-term Care Insurance (LTCI) is a relatively new Health Insurance product. Originally called "Nursing Home Insurance," the policy has evolved over the past 20 years to include many other benefits, other than simply paying a daily amount while the insured is in a Nursing Home.
Shortly after the Nursing Home Insurance policy was introduced, a need for a policy covering home health care was devised. The original Home Health Care policy was simply a daily amount paid if the insured was unable to leave their home for health reasons, etc. The daily amount needed for Home Health Care was less than that needed if the insured was in a Nursing Home, so the premiums were lower. The lower cost, plus the desire of most senior citizens to stay at home if they became disabled, led to the popularity of the Home Health Care policy.
Many companies in this field then integrated the Home Health Care benefits with Nursing Home benefits. The amount payable for Home Health Care (HHC) was either a selected daily maximum, or a percentage of the Nursing Home daily benefit (80% or 50% were the most popular amounts). These policies became known as "Long-term Care” (LTCI) insurance policies. Added benefits were created, such as Assisted Care Facility benefits, Adult Day care, Caregiver Training, Bed Reservations, etc., as described below.
Of more recent invention was the calculation of Home Health Care or Nursing Home Care, or other benefits of the LTC Insurance policy, as a "Pool of Money", “Pot of Money” or “Lifetime Payment Maximum” (term used in states that offer a “Partnership” LTCI program) or similar names, instead of a chosen daily benefit and length of time the benefits are to be paid. One of the problems involved in LTCI policies that allowed a choice of the HHC benefit amount, or a HHC "stand‑alone" policy, was that the applicant had to guess as to whether they could become ill and go directly into a Nursing Home; or whether they could become disabled and stay at home; or any combination thereof. The recent development offered a fixed amount to be paid throughout the life of the policy (unless the applicant chose Lifetime Benefit Period, a rather expensive choice). This amount is determined by multiplying the Benefit Period (stated in days) by the Maximum Daily Benefit Chosen. This "pot/pool" could then be used for any of the LTC benefits, until the total amount of the "pot/pool" had been spent. For example, a $100 Daily Benefit, 3 year Benefit Period (1095 days) would create a "pot/pool" of $109,500. When this amount has been spent under any benefit or combination of benefits offered by the particular LTC Insurance policy, the policy was then terminated.
For the Partnership Plans used in some other state, the total dollar benefits of a LTCI is of extreme importance in the determination of asset protection under new Medicaid regulations,
LTC Insurance has become very competitive recently. The National Association of Insurance Commissioners (NAIC) developed a standardized policy form that has been adopted by most, if not all, Insurance Departments. Many of the insurance regulations and laws in Delaware were suggested in the NAIC Model Bill.
An HIAA study identified the people who are actually buying LTCI policies by age group, with these results.
These figures indicate that about 19% of buyers are younger than age 65. One factor that has contributed to an increase in younger buyers is growth in the employer sponsored LTCI.
The reasons that Long Term Care insurance exists and continues to appeal to a substantial number of persons can be summed up as four basic reasons:
Breaking this down further, there are four reasons for purchasing LTCI:
With a policy the client and their family have many choices when the need for care arises. Children can meet the needs of their parents and still retain control over their own lives. Parents can retain their dignity and independence by not having to depend on the children, or the state, for their care. This allows families to enjoy more quality time together without the physical, mental and financial strains that often accompany the process when there is no insurance coverage available.
Recent studies indicate that policyholders who have used their benefits have only used 10% overall for Nursing Facilities while they have used approximately 25% of all benefits for Assisted Living and the remaining 65% for home and community based services. Note the following chart:
UTILIZATION OF SERVICE BY LTCI POLICYHOLDERS
TYPE OF SERVICE, This quarter, % of all services Cumulative % of
OTHER THAN CARE MANAGEMENT rendered to policyholders in benefit all services ren-
by type of service dered by Type of
Service
_______________________________________________________________________________________
Skilled Nursing Facility 8% 10%
Assisted Living Facility/RCF 26% 24%
Other Alternative Housing 1% 2%
Home Health Aide Services 15% 14%
Adult Day Care (health & social) 2% 1%
Attendant Care 8% 15%
Personal Care 20% 19%
Homemaker (no personal care) 1% < 1%
Chore Services 4% 1%
Personal Emergency Response System 1% < 1%
Care Planning (benefit cost) 4% < 1%
Coordination (benefit cost) 3% < 1%
DME 1% < 1%
(Services less than 1% not included, total may not equal 100%)
This is significant because it shows what anyone who has worked with seniors knows, that—
F Consumers who have an LTCI policy prefer overwhelmingly to receive care in a setting other than a nursing home.
Nursing homes bring back memories of many seniors of the "Old-Folk’s Home" where they used to visit relatives and they have unpleasant memories of linoleum floors, poor caregiving, and the odors! On the other hand, the person interested in LTCI might feel just the opposite and would prefer being in a place where professional care is available 24-7. The LTCI can provide such choices and options.
Long-term care can be very expensive, there is no doubt. Putting aside for now the probabilities of a person entering a nursing home or other covered facility and remaining there for an indefinite period, it is necessary to look at the principal expense of LTCI policyholders in order to understand why it costs so much—or so little if compared to the possible overall costs.
The principal reason for the cost is the cost of nursing home care. Generally, this is the most expensive costs for long-term care.
F According to a recent study by AARP, the national average for a nursing home is $194 per day. The average for Delaware is $197.
Home health care is less expensive (usually) but it can also be expensive when, for instance, an aide coming to the home just three times a week (two to three hours per visit) to help with dressing, bathing, preparing meals, and similar household chores can easily cost $1,000 each month, or $12,000 a year. Add in the cost of skilled help, such as physical therapists, and these costs can be much greater.
A study of Assisted Living facilities indicated estimated that assisted living facilities charged an average monthly fee of $1,873, including rent and most additional fees. Some residents in the facility may pay significantly more if their care needs are higher. The monthly rates range from $800 to $4,000, depending, of course, on what services are offered and quality of the facility.17
Since Long Term Care Insurance is a relatively recent insurance product, there was—and in some areas, still is—lack of accurate and specific data and loss history necessary in order to create adequate and fair premiums. When the first “nursing home” policies were developed, actuaries had to be cautious in calculating the premiums as premiums must be adequate to cover the losses and provide a reasonable profit for the insurer, but at the same time, the premiums could not be so expensive that they were prohibitive to the purchaser.
At the same time underwriting standards must be devised to protect profitability, so in the early years they were rather strict, and generally required that the insured spend a certain period of time in a hospital or nursing home before claims could be made on the policy.
The reaction of the marketing force and competition from companies newly entering the business and hungry for their market share, forced premiums to be at their lowest. As one could expect, soon the losses were prohibitive without an increase in premium. In addition, consumer groups were complaining that the requirements for benefits were too strict.
The inevitable result was the reduction in the number of companies offering this type of insurance, and some merging of companies and purchasing of blocks of LTCI policies by larger companies. But primarily, there was a necessary increase of premiums.
Insurers, obviously, cannot arbitrarily increase premiums as these policies are, by regulation, guaranteed renewable. Therefore, companies can raise premiums only if premiums are increased on all policies of that specific type in specified areas. Even so, the insurance departments of the states must allow some increase in premiums if it can be shown that the insurers may become insolvent if the existing premiums continue.
The reasons for the increases can be due to a variety of factors, such as new laws or regulations that require a certain risk be covered and the premiums are inadequate to provide such coverage. Also, as with any health insurance product, there is a chance for over-utilization, and if the insurer can show an increased and unexpected utilization, then the insurance department will consider if the premium increase is justified.
Delaware regulations state that for certificates issued on or after the effective date of this amended regulation under a group long-term care insurance policy which policy was in force at the time this amended regulation became effective, the provisions of this section shall apply on the policy anniversary following January 1, 2006.18
Other than policies for which no applicable premium rate or rate schedule increases can be made, insurers shall provide all of the information listed in this subsection to the applicant at the time of application or enrollment, unless the method of application does not allow for delivery at that time. In such a case, an insurer shall provide all of the information listed in this section to the applicant no later than at the time of delivery of the policy or certificate.19
Information regarding each premium rate increase on this policy form or similar policy forms over the past ten (10) years for this state or any other state that, at a minimum, identifies20:
The insurer may, in a fair manner, provide additional explanatory information related to the rate increases.
An insurer shall have the right to exclude from the disclosure premium rate increases that only apply to blocks of business acquired from other nonaffiliated insurers or the long-term care policies acquired from other nonaffiliated insurers when those increases occurred prior to the acquisition.
If an acquiring insurer files for a rate increase on a long-term care policy form acquired from nonaffiliated insurers or a block of policy forms acquired from nonaffiliated insurers on or before the later of the effective date of this section or the end of a twenty-four-month period following the acquisition of the block or policies, the acquiring insurer may exclude that rate increase from the disclosure. However, the nonaffiliated selling company shall include the disclosure of that rate increase.
If the acquiring insurer files for a subsequent rate increase, even within the twenty-four-month period, on the same policy form acquired from nonaffiliated insurers or block of policy forms acquired from nonaffiliated insurers the acquiring insurer shall make all disclosures required by regulation, including disclosure of the earlier rate increase referenced above.21
An applicant must sign an acknowledgement at the time of application, unless the method of application does not allow for signature at that time, that the insurer made the disclosure required. If due to the method of application the applicant cannot sign an acknowledgement at the time of application, the applicant must sign no later than at the time of delivery of the policy or certificate.22
An insurer shall provide notice of an upcoming premium rate schedule increase to all policyholders or certificate holders, if applicable, at least forty-five (45) days prior to the implementation of the premium rate schedule increase by the insurer. The notice shall include the information required as stated above when the rate increase is implemented. 23
Delaware considers certain increases as “exceptional increases” and addresses such application for increases as follows24:
"Exceptional Increase" means only those increases filed by an insurer as exceptional for which the Commissioner determines the need for the premium rate increase is justified:
In the determination by the Department of Insurance as to whether an additional benefit should be grounds for increasing premium, the Department considered “incidental benefits” to be the value of the long-term care benefits provided that is less than ten percent (10%) of the total value of the benefits provided over the life of the policy. These values shall be measured as of the date of issue.25
As mentioned above, increases must be on “similar” policy forms, which are defined by regulation as all of the long-term care insurance policies and certificates issued by an insurer in the same long-term care benefit classification as the policy form being considered. Certificates of groups that meet the definition in the regulations are not considered similar to certificates or policies otherwise issued as long-term care insurance, but are similar to other comparable certificates with the same long-term care benefit classifications. For purposes of determining similar policy forms, long-term care benefit classifications are defined as follows: institutional long-term care benefits only, non-institutional long-term care benefits only, or comprehensive long-term care benefits.26
In order for there to be approval of premium increases, the insurer must make the case that their loss ratio in unacceptable for the risk insured. The Insurance Department looks at the relation to the premium provided to see if it is reasonable.
In this matter, the Delaware regulations state that Benefits under long-term care insurance policies shall be deemed reasonable in relation to premiums provided the expected loss ratio is at least sixty percent (60%) for individual policies and at least sixty-five percent (65%) for group policies, calculated in a manner which provides for adequate reserving of the long-term care insurance risk. For general information, the expected loss ratio will be determined by considering the following factors:
These regulations will not apply to life insurance policies that accelerate benefits for long-term care. A life insurance policy that funds long-term care benefits entirely by accelerating the death benefit is considered to provide reasonable benefits in relation to premiums paid, must comply with different specific regulations.28
Recently there has been a lot of publicity regarding prescription drugs, particularly for the senior citizens. Even with Medicare’s drug program, out-of-pocket spending by seniors for drugs is a small fraction of long-term care costs overall. When added to the other LTC expenses, the combination of prescription drugs and long-term care can be financially disastrous to seniors.
Medicaid is the principal payer for nursing home costs—2/3 of nursing home patients are Medicaid recipients and Medicaid pays nearly 45% of nursing home costs. This will be explored in more detail later in this text, but suffice it so say that because of Medicaid abuse Congress (and state legislatures also) have recently introduced legislation to criminalize asset transfers for the sole purpose of qualifying for Medicaid. Governments have become concerned because, frankly, there just are not enough tax dollars available to pay for a national long-term care plan. As it is, 43 percent of all tax income is used to pay for entitlements such as Social Security, Medicare and Medicaid.
An interesting, but not unexpected result of attorneys, insurance agents and financial planners becoming involved in Medicaid planning, or even just in financial or estate planning, is the possibility of conflict of interest situations when representing heirs in protecting their inheritance instead of serving also the best interests of the elderly clients. If these professionals conserve the estate for the children or grandchildren or intentionally impoverishing the nursing home patient (particularly if they are cognitively impaired), they may be guilty of “senior financial abuse” and they should, at least, also be aware of the sharp rise in errors and omissions lawsuits particularly for those involved in Medicaid planning.
There has recently been considerable publicity regarding the lack of doctors who specialize in geriatrics because of the low rate of compensation compared to what they would receive in other specialties. This is primarily due to the high level of dependence on Medicare and Medicaid by seniors and the low overall payment rates of these programs, including administrative and claims delays. Also, elderly patients require much more labor-intensive treatments than other types of patients.
Some interesting statistics to prove the point: 80% of all healthcare expenditures occur after age 50 and persons overage 65 in the US represent only 13 percent of the population but account for more than 50 percent of physician visits each year.
Statistics also show that in order to keep up with America's aging population, the country will need 36,000 geriatricians by 2030 - currently there are less than 9,000.
Some medical institutions are providing special classes dealing with "senior sensitivity" to assist doctors in dealing with the special challenges and needs of the elderly population, which will represent a large part of their overall patient load in the near future.
“Longevity is increasing, the baby boom generation is nearing retirement age, and the portion of our population age 65+ is the fastest-growing segment of our society. But while the number of older persons is expected to increase rapidly, demographic changes in families (more childless, one-child, and step-families) and increasing participation of women in the workforce suggest a likely decrease in provision of informal care for aging baby boomers.”30
A national newspaper in 2001, addressing the need for long-term care and caregivers, stated that “Geographic changes are also expected to make it more difficult to obtain care from family members or other relatives. In the past, family members lived close to each other and could rely upon each other for help. But the extended family of yesteryear has all but vanished. Families are increasingly spread apart, with mom and dad living in one part of the country while their children often reside thousands of miles away Baby boomers and seniors alike would do well to provide for their own care, independent of relying on relatives, and a Long Term Care Insurance policy would help provide the funds to pay for the care you may need.”31
There will be a time when there are a smaller number of workers in the future, and those are higher educated and better paid—so who will be the caregivers then? Actually, nursing homes and other similar types of businesses that rely upon the lower-wage less-educated persons may look to recent immigrants for their employees. This can create its own bag of troubles, particularly because of language and cultural differences between them and their patients.32
STUDY QUESTIONS
1. One of the problems involved in early LTCI policies that allowed a choice of the HHC benefit amount, or a HHC "stand‑alone" policy, was that the applicant had to guess as to whether they could become ill and go directly into a Nursing Home; or whether they could become disabled and stay at home; or any combination thereof. This problem has been addressed by
A. having higher elimination periods.
B. raising commissions.
C. introducing policies where benefits are consolidated into a dollar amount, often referred to as a "Pot of Money" or some other similar term, creating a maximum benefit payable.
D. selling separate nursing home and home health care policies.
2. One of the reasons that Long Term Care insurance exists and continues to appeal to a substantial number of persons is
A. that it is cheap and most people can afford it.
B. it pays the highest commissions of any insurance product.
C. it is sold by securities dealers as an investment.
D. stricter Medicaid rules and penalties for transferring assets.
3. Recent studies indicate that policyholders who have used their benefits have
A. only used 10% overall for Nursing Facilities.
B. used 95% of the benefits for Nursing Facilities.
C. used only a small fraction for home health care.
D. overwhelmingly used their policies as collateral for a loan.
4. According to a recent study by AARP, the national average for a nursing home is
A. $300 per day.
B. $275 per day.
C. $194 per day.
D. $3,000 per month.
5. In the same study, the average cost of a nursing home in Delaware was
A. $197 per day.
B. $366 per day.
C. $5,760 per month.
D. $5,820 per month.
6. If the professional estate and financial planners conserve the estate for the children or grandchildren or intentionally impoverishing the nursing home patient (particularly if they are cognitively impaired), by, for instance, using an LTCI policy,
A. they are to be commended for doing a fine job.
B. they may be guilty of a felony of stealing funds from the heirs.
C. they may be guilty of “senior financial abuse.”
D. no matter what is done to preserve the estate, insurance or anything else, Medicaid can come back at the heirs to replace any assets given them over the past 10 years.
7. There has recently been considerable publicity regarding the lack of doctors who specialize in geriatrics because of the low rate of compensation compared to what they would receive in other specialties. This is primarily due to
A. the increasing number of doctors who were citizens of other countries.
B. the return of the citizenry to their rural roots.
C. the lack of podiatrists and other specialties.
D. the high level of dependence on Medicare and Medicaid by seniors and the low overall payment rates of these programs, including administrative and claims delays.
ANSWERS TO STUDY QUESTIONS
1C 2D 3A 4C 5A 6C 7D