Insurance companies continue to develop new ways to make benefit payments. Some insurers allow the insured to select each type of daily benefit independent of the others, rather than specifying a certain percentage that the insured is locked into. For example, an insured might be permitted to select a $100 daily nursing home benefit and a $70 home care benefit, regardless ofthe level of care provided. Policies that give more choices to the insured generally cost more than policies where the insurance company sets the limits with few, if any, choices for the client to make.
An increasing number ofcompanies now offer policies that consider policy benefits in terms of an "account" or "pot‑of‑money” or “pool” or some other descriptive term, as discussed regarding the reimbursement/indemnity types of policies. Under this type of arrangement, any benefits the insured does not use ‑– for example, because the actual daily costs are less than the available benefit amount –‑ are set aside into an account that may be used at a later date if needed. In some policies, a certain maximum dollar amount is established ‑ some multiple of the daily benefit ‑ and benefits for all types of covered care are paid from that account. In others, unpaid benefits from one part of the policy. such as nursing home benefits, may be used if necessary for some other part, such as home health care and vice versa.
Never guess or assume that any given policy pays alternate care benefits according to a certain formula. The agent must read the policy in order to accurately explain benefits to clients.
The benefit period, or length of time for which an LTC Insurance policy pays benefits, is another significant factor in the cost of a policy –– the longer the period, the greater the premium, assuming everything else is the same. Some LTCI policies offer benefit periods ranging from as little as one year to ten years or more and as long as a lifetime. Not all options are available from all insurers. A single insurer might offer more than one type of LTC Insurance policy, in which case the benefit periods available might differ for each policy type.
As a general rule, the periods are 1, 2, 3, 4, 5 years, and Lifetime. Those policies using the “Pool” concept express their benefit periods as the total amount that can be accumulated in the “Pool.” However, they usually also offer a lifetime policy, in which case there is no actual Benefit Period – the policy pays the costs of the longer-term care up to the Daily Benefit chosen. These policies, obviously, are quite expensive.
A lifetime benefit period might be referred to as "unlimited" or "unlimited lifetime" coverage.
In determining the “proper” or “recommended” benefit period, one statistic to keep in mind is that nearly 90% of all people over age 65 who enter a nursing home stay less than 5 years. Presently the average length of time for current residents is 2 ½ years. Therefore it would seem to reasonable to purchase a 3 or 4 year benefit period, preferably a 4 year policy, as that way, if nursing home care is needed for a longer time, 4 years should give the insured and family time to prepare for the financial demands of a longer stay. Still, it must be kept in mind that people are living longer so by the time that the insured would need to be admitted to a nursing home, the time that they will stay there will have increased on the average –– therefore the 4 years is preferable to the 3 year.
Certain insurers whose policies cover nursing home care plus other types of care have different benefit periods for different care settings. For example, the insured may choose up to five years for nursing home care and two years for home health care. Some insurers establish the number of years themselves; others allow the insured to select different periods for each coverage if desired. At least one policy currently differentiates the type of care received in a nursing home, with benefits paid for two, three or four years for skilled and intermediate care, but for only 60 days when care is custodial.
Other companies offer different benefit period options based on the insured's age at the time of purchase. For example, one insurer offers people age 45 to 79, periods of two, four or six years or lifetime coverage, while people who are 80 to 84 may select only one ‑ or two‑year benefit periods.
Be cautious about policies that define their benefit periods as a one-time maximum period. This means the insured can receive policy benefits only one time. For example, suppose the benefit period is three years. An insured receives benefits for one year, and then recovers. If that insured should need long‑term care again at a later date, there is no coverage even though it would appear two more years worth of benefits are available. Most policies, on the other hand, pay for another round of long‑term care. Many policies have a restoration of benefits feature that assures benefits are available for future needs.
What is the best benefit period? Considering all of the variables that affect any given person's situation, the question is difficult to answer. Advocates often suggest three or four years to get the best combination of affordability and adequate coverage time; others recommend a six year minimum. Still another suggests each individual select the longest period he or she can realistically afford. Most people who are confined to a nursing home need care for three months or less, yet the average nursing home stay is two and one‑half years. And, the average is so long because of the few who will spend the rest of their lifetimes in a nursing home or receiving custodial care at home or elsewhere. In the end, for a healthy person, it's a gamble with nature. For those who can afford to pay for some period of LTC Insurance benefits, one year is probably better than none since the cost of one year of care currently ranges from $30,000 to $60,000 (however, one year coverage is not available in many states).
Most policies do allow for restoration of benefits. The insured must be off-claim before benefits are restored for periods ranging from 180 days to 6 months as a rule, with most policies using the 180 days. Most policies have a maximum number of times that they can restore, usually twice.
The point to remember in discussing restoration of benefits is that the period before benefits are restored must be as indicated (180 days or 6 months usually) in the policy and the insured must have been treatment-free before the claim or the new claim is for a different cause completely. This can be best explained by example: The insured had a hip replacement and as a result, he was eligible for 45 days of benefits. Eight months later he reinjured his hip while working on a home project and went back into the hospital, with several weeks of physical therapy later. He filed for new benefits, however it was discovered that since his hip surgery he had been taking prescription anti-inflammatories for the pain in his hip. Therefore he did not qualify for restoration of benefits as he had continued his treatment for the previous injury.
It helps to remember that this provision is required in many states because it was devised to protect elderly insurers who may have forgotten to pay the premium on time. The insured is still required to pay any back premiums if premiums are in default.
The policy wording states in essence, if the policy lapses, and it can be shown that the insured suffered from organic brain disease or loss of functional capacity at the time, the insured or any person acting on their behalf will have a specified time to request reinstatement (such as 5 months). Evidence of insurability will usually not be required; however the insured must pay all back premiums from the date of default and may be required to provide supporting documentation as to their physical or mental conditions at time of lapse.
Long‑term care policies frequently include a limitation on the payment of benefits for pre‑existing conditions - medical conditions the insured was treated for or knew about before the effective date of the policy. In some policies, a separate provision addresses pre‑existing conditions; in others, they are treated as an exclusion. This topic will be discussed separately from exclusions since pre‑existing conditions, though often excluded from early coverage, are usually covered after some period of time. Pre‑existing conditions, then, more accurately represent a situation that is subject to a policy limitation rather than a complete exclusion.
Be especially aware that insurers define pre‑existing conditions in different ways. The first part of the definition generally includes terminology similar to this:
"Any illness, disease or injury for which the insured was diagnosed and/or received treatment during (a specified period) immediately preceding the effective date of the policy."
The exact specified period is stated. For example, one policy might say
"...during the six months immediately preceding the effective date of the policy."
Another might stipulate:
"...during the 365 days immediately preceding the effective date of the policy."
Still another policy says:
"...during the two years immediately preceding the effective date of the policy."
The point is that any given policy states the precise length of time that the insurer looks back into the insured's past medical history to decide what constitutes a pre‑existing condition. If the time period is six months, then, a condition for which the insured was treated one year ago and not since that time would not be a pre‑existing condition.
Whatever the period stipulated, if the insured needs long‑term care because of any condition that meets the policy's definition, the insurer will not pay benefits. One must be aware that taking medication qualifies as "treatment." Typically, policies will eventually pay benefits even for a pre‑existing condition after the policy has been in force for a specified period. Again, the actual length of time that must pass before the condition will be covered varies. For example, an insurer might say that no benefits will be paid for pre‑existing conditions diagnosed or treated during the 365 days preceding the policy effective date, but will be covered after the policy has been in force for 365 days. Be aware, however, that some policies exclude benefits for a pre‑existing condition forever.
To encourage people who apply for insurance to reveal pre‑existing conditions, some insurers define them as conditions that existed before the policy's effective date and which were not revealed to the insurer. In other words, the insurer agrees to pay benefits for pre‑existing conditions as long as the conditions were revealed in advance and are not otherwise excluded.
The pre-existing conditions are different with tax-qualified plans as they provide that as long as the applicant was fully candid and provided the insurer all details regarding a particular medical problem, including the names of all attending physicians and consulted physicians and all medication in respect to such problem, then once the policy is issued, any disability related to that medical problem would be covered (subject, of course, to the terms of the policy and conditions and waiting period).
Of all of the policies reviewed for 2004, only one had a six-month preexisting condition clause and that was how long the policy had to be in force before the preexisting condition will be covered. While some preexisting condition provisions in the past had a “look-back” period, usually six months, it seems that few, if any, still have this as part of their preexisting condition clause. LTCI insurance seems to have gone from having one of the most severe preexisting condition clauses to having one of the more liberal clauses, probably because of consumer concerns.
The conditions that generally trigger the need for long-term care are basically:
These were mentioned in the discussion of Underwriting, but should be discussed more in respect to preexisting conditions. Having any of these conditions does not automatically exclude the applicant from LTCI coverage, with a couple of exceptions as noted. But regardless, they are the ones that are the most carefully scrutinized by the underwriters.
Dementia – Forget about it (or as they say in NY, “Foggedabowdit”). If the person has it, they cannot get LTCI as there is no recovery as far as underwriters are concerned.
Diabetes mellitus is different. Juvenile diabetes causes problems, particular if they are seniors with this disease for many years. Adult diabetes can be controlled by diet and/or medication, and underwriters can assess the results better. Of course they are looking for such things as loss of a limb or an eye, kidney disease, neuropathy, hypertension, etc. Many insurers will offer policies to those with diabetes that have it well under control with insulin without complication for some period of time. If the applicant is diabetic, then a good agent will ask about a specific list of complications, instead of just accepting “I’m doing just fine” as a response.
Emphysema or chronic pulmonary disorders are rarely insurable. Obviously, if one has a hard time just breathing, they will also have a hard time taking care of themselves. They may look at the insured’s use of tobacco and estimate the use of oxygen, but usually, it is just turned down.
High blood pressure (hypertension) if uncontrolled, can lead to a stroke so it is of concern to underwriters. Medication available today will generally keep it under control, so they may be insurable. If they have ever had a stroke, even a little, teeny, one, they are uninsurable with most insurers.
Fractures, if they are the result of dizziness or falling, or because of osteoporosis, they are of interest to the underwriters. Underwriters may link the fall or dizziness with osteoporosis and if there is a history of falling, they may be declined. Seniors are notorious for losing their balance and falling, with catastrophic results sometimes. Many times those bones don’t heal like they used to, therefore there must be nursing home or other type of care, so the underwriters get nervous when they see a history of falling.
Bone diseases and joint diseases send up a red flag for the possibility of arthritis or osteoporosis, either of which can cause fractures. Also, if the person is on prednisone, which is used to treat rheumatoid arthritis, it can cause bone damage if taken in large doses, another underwriting problem.
Cancer covers such a broad spectrum that there is no one hard-and-fast rule. If a person has had cancer at least two years earlier (some companies require a longer period) and is free of treatment for this period of time and the cancer did not spread to other organs, some insurers will approve a policy. If the cancer had affected the lymph nodes, then there could be a 10 year waiting period – which pretty well serves as a decline for the older applicants.
Atrial fibrillation, arrhythmia, irregularities in the heart beat increases the risk of stroke by six times. Certain medications can help the heart work more efficiently, along with anticoagulants such as coumadin, can reduce the possibility of a stroke by 60%, leaving 40% - therefore underwriters look very closely at those with these conditions.
Some states and insurance companies use a fairly liberal definition of pre‑existing conditions, referred to as the "six and six" provision. "Six and six" refers to the six months preceding the policy effective date that the insurer is permitted to look back to identify pre‑existing conditions; and the six months after the effective date that is the maximum period during which coverage may be denied for care related to pre‑existing conditions. The "six and six" provision is based on a model LTC Insurance policy recommended by the National Association of Insurance Commissioners (NAIC).
Although most policies include some limits on pre‑existing conditions, a few LTCI policies have no such restrictions at all. Obviously, these are the best from the consumer's point of view.
All policies list certain conditions or circumstances that could lead to long‑term care, but for which the policy will not pay benefits. Typical LTC Insurance policy exclusions are:
The agent must know the exclusions for each policy sold. Not all exclusions are found in every policy and those that are may be modified in some way. For example, while care resulting from substance abuse is generally excluded, the policy might pay for care resulting from addiction to drugs prescribed by a physician. Also, an LTC Insurance policy might list additional exclusions not mentioned here.
Most LTCI policies, if not all, sold today are guaranteed renewable, which means as long as the insured pays the premiums the insurer may neither refuse to renew nor cancel the policy, regardless of the insured's health. In addition, the premium for a guaranteed renewable policy may be increased only if the insurance company raises premiums for every other policy of the same type sold to the same group of people. In other words, no single policy may be assessed a premium increase based on an individual insured's experience. However, if everyone in a certain geographical area or of a certain age group holding the same type of policy receives a rate increase, this is permissible. As for age, a guaranteed renewable policy prohibits insurers from increasing premiums solely because a specific insured is growing older. Each policy should clearly spell out the conditions under which an increase may occur. Insurers often guarantee the starting rate for some period, three or five years for example, regardless of external circumstances that might otherwise increase rates for all policyholders.
Some policies on the other hand, might be conditionally renewable. This means the insurer reserves some conditions under which it will not renew the policy and these must be specifically stated. Consumer advocates warn buyers away from any policy that gives the insurer the right to cancel or non-renew for any reason other than not paying premiums.
Today’s LTCI policies are offered to people as young as 18 or 20, or even no minimum age. In practice, most policies are offered to people from age 50 to age 84, though many are now offered to people in their 40’s with employer-sponsored or group LTCI. Even insurers who will write LTCI policies for younger people usually direct most of their marketing efforts to people who are older than 50 because younger people generally show less interest. Some agents and insurers may have a different philosophy and choose to actively solicit the younger business. Employer‑sponsored or, group LTC Insurance is an exception; as younger age groups are targeted.
The most popular policies offer LTCI to those of the following minimum\maximum ages.
Minimum age 18, maximum 84 (most common)
Minimum age 18, maximum 89 (several).
Minimum age 18, maximum 85.
Minimum age 18, maximum 79.
Minimum age 18, maximum 80.
Minimum age 40, maximum 84 (a few).
No minimum age, maximum age 84.
Minimum age 40, maximum age 80.
No minimum age, maximum 85.
This merely shows that the minimum and maximum age are by no means, standard.
There are some policies designed to appeal to much older people and written with special features designed to appeal to the quite elderly. For example, currently some insurers offer older seniors a policy with a premium guaranteed to remain level for the life of the contract. Another allows inflation increases to be applied for the insured's lifetime, rather than expiring at a specified age, such as 85. Insurers will no doubt continue to innovate based on marketing and claims experiences, resulting in new features to appeal to those people insurers particularly want to target.
STUDY QUESTIONS
1. There are policies that allow an insured to select a daily nursing home benefit and a different home health care benefit, regardless of level of care. These policies
A. are usually cheaper than those with fixed limits.
B. nearly always cause problems at claims time.
C. pay no commission except for a small token amount.
D. are usually more expensive than those where the limits are set by the insurer.
2. The “Benefit Period” of an LTCI policy is
A. the period of time before the policy benefits are paid.
B. length of time during which the policy pays benefits.
C. the length of time between increases of the inflation rider.
D. the period of time that the insured survives and continues payment after age 65.
3. Benefit periods in an LTCI
A. remains constant for all levels and types of care.
B. may vary between different care settings.
C. may never exceed 4 years by law in most states.
D. are always the same for the nursing home care and home health care, but other types of care can vary.
4. A policy that defines their benefit period as “one-time maximum period”
A. means that the insured can receive policy benefits only one time.
B. indicates that the policy has a restoration of benefits clause.
C. is typical of most LTCI policies on the market today.
D. is considered as very liberal with their benefits.
5. Benefits paid out on a LTCI policy can be restored, i.e. made available for a new claim,
A. regardless of the reason for the claim or when symptoms were noted.
B. by purchasing a new supplemental policy.
C. if it was after a period of time, usually 180 days, since the last claim, and if the new claim was for a completely different claim or insured was treatment-free from the old claim during this time.
D. provided the previous claim did not use more than 25% of the available benefits.
6. Any illness, disease or injury for which the insured was diagnosed and/or received treatment during (a specified period) immediately preceding the effective date of the policy, is
A. the elimination period.
B. the definition of medical necessity.
C. the definition of a preexisting condition.
D. part of the ADL definition.
7. With a TQ plan, and with most of the newer versions of the non-tax-qualified (NTQ) plans, if a preexisting condition has been disclosed on the application,
A. the application will automatically be rejected.
B. then any benefits under the issued plan will be taxed as ordinary income.
C. no commissions will be paid.
D. once the policy is issued, any disability related to that medical problem will be covered, subject to the terms of the policy, etc.
8. Among medical conditions that will trigger benefit payments and therefore are of interest to the underwriter, is “Dementia,”
A. which would require some tests by psychologists, but otherwise would be accepted.
B. but if a person has it, there is no way that they can purchase LTCI.
C. which refers to sexual orientation but which cannot now be used as a method of declination (because of AIDS).
D. which is a medical condition where the patient cannot control their bowels.
9. The “Six and Six” provision refers to
A. the 6 month elimination period with a 6-year benefit policy.
B. if more than 6 medical conditions or medications are listed, the applicant must wait for 6 months before the application is reviewed again.
C. the 6 months “look-back” period in determining preexisting condition, and the 6 months after issue that the claim can be denied because of the condition.
D. the commission schedule of 6% first year and 6% renewal.
10. LTCI policies are almost always,
A. guaranteed renewable.
B. conditionally renewable.
C. annually renewable.
D. not allowed to ever raise premiums.
ANSWERS TO STUDY QUESTIONS
1D 2B 3B 4A 5C 6C 7D 8B 9C 10A