Many insurers today offer long‑term care benefits in the form of a rider attached to a life insurance policy. How these riders work is as varied as LTCI policies themselves. Insurers may refer to LTCI benefits provided by such a rider as accelerated or living benefits; indicating benefits may be paid before the insured dies. Payment of accelerated life insurance benefits has generally required the insured to be diagnosed with a terminal illness or to be faced with lifelong confinement to a nursing home,
One of the newer riders, however, permits the insured to receive benefits for long‑term care without a terminal diagnosis. In this case, some insurers use a separate rider, commonly known as a nursing home rider. LTC riders can add from 5% to 30% to the annual life insurance policy premium.
Most LTC riders do not provide a benefit uniquely dedicated to the payment of Long-term care costs. Instead, the insured may use a percentage of the face value of the life insurance for this purpose for each month of care. Two percent is typical. With a life insurance policy face amount of $200,000, then, the insured could use 2% or $4,000 each month while receiving long‑term care
Some policies use different percentages for different levels of insurance. For example, the insurer might stipulate that the insured might use, for LTC expenses 2% of the first $200,000 face value plus 1/2% of the next $200,000 face value. For example, with a $300,000 policy face value, the following would be available to this insured:
.02 x $200,000 = $4,000
.005 x 100,000 =500
Maximum LTC benefit $4,500 per month
Insurers sometimes stipulate a maximum monthly LTC benefit regardless of the dollar amount the percentages produce. In the previous example if a $3,500 maximum applies, the insured would not be eligible to receive the full $4,500 calculated by applying the percentages.
Riders that pay for long‑term care in the insured's home often stipulate a smaller amount for this purpose. For example, for home care the insured might be able to access only 50% of the amount that would be available for nursing home confinement.
While some riders allow the insured to use 100% of the face amount of life insurance for long-term care benefits if needed, others limit the amount that may be accessed for long-term care costs. Sometimes the limit is a percentage, such as 50%, 75% or as much as 95% of the face value.
For a $200, 000 life insurance policy with a 75% limit, the insured could use up to $150,000 for long-term care benefits, with $50,000 remaining as a death benefit. Other policies might stipulate a certain dollar amount for policies within a certain range, such as a maximum of $50,000 for long-term care benefits on policies with face amounts from $ 100,000 to $200,000.
Regardless of the maximum benefits, some insurers will not allow full payment of long-term care costs. For example, the rider might require the insured to coinsure 50% of the daily cost. This means the insured pays 50% and the insurance covers the remaining 50%. So, for example, even if the insured has access to $100 per day by virtue of the percentage permitted, if the care costs $80 per day the rider pays only $40 and the insured pays $40 per day.
Some riders require the life insurance policy and rider to be in force for a stipulated number of years before long-term care benefits will be paid, while others activate the rider as soon as the policy is in force. Most riders also specify an elimination period after the insured starts receiving care before long-term care benefits are available. Typical periods are from 60 to 180 days.
Insurers typically restrict the portion of the face amount available for long-term care benefits to the base policy when a term insurance rider is attached. For example, suppose the insured has a base policy of $100,000 of permanent life insurance with a $200,000 term insurance rider attached. The insured may use up to 2% per month of the $100,000 base policy value to pay for long‑term care, but none of the term insurance face value may be used.
Long-term care riders generally have exclusions and limitations similar to LTCI policies. Typically, coverage does not apply to care outside the U.S. or to care for treatment of substance abuse or for attempted suicide. Some riders pay for all levels of care, some only for skilled care. A few riders may require prior hospitalization.
Finally, remember that certain riders might require the insured to be diagnosed as terminally ill or to have a physician certify that nursing home confinement for life is likely in order for benefits to be paid. In addition, some insurers cover accelerated benefits without a rider, instead including these benefits as a standard policy provision, while others use a separate nursing home rider for this purpose.
At least one insurer currently offers an long-term care rider with its group life insurance plan, paying benefits for long‑term care in nursing homes and at home after an insured's group policy has been in force for two years. Elimination period and prior hospitalization requirements are somewhat more stringent for this rider than typical LTC Insurance policy requirements. Fifty months of benefits are payable, limited to 2% of the death benefit. This particular insurer's group policy is universal life, which means the death benefit may vary; the 2% applies to the base amount. The life insurance policy's cash values diminish by the amount of each benefit payment, but if the insured recovers before depleting cash values the balance remains available for future payment.
Some annuity policies also offer riders that provide benefits for long-term care. While annuities are usually subject to surrender charges if funds are withdrawn early, no such charges apply to money withdrawn to pay for long-term care expenses.
Annuity policies sometimes include accelerated benefits provisions similar to life insurance policies, requiring a diagnosis of terminal illness or lifetime nursing home confinement for activation. Thus, where an annuity long-term care rider is available, it provides more liberal coverage than the accelerated benefits.
With the rising awareness of long‑term care needs and costs, insurers and others have become more innovative in finding ways to give people access to funding. The accelerated benefits and LTC riders are just two ideas that arose from those needs.
Insurers are also developing annuities, life insurance and disability income insurance policies that can be converted to long‑term care policies if desired. These are sometimes called transformational policies because they are "transformed" from the original type of coverage to another form of insurance. In most cases, for a modest additional premium an insured purchases the option to make the change in the future if desired. The insurer might allow the conversion to occur anytime between specified ages, such as from age 55 to age 70, or stipulate several future dates when the change may be made.
Another new policy now available begins with an existing product, joint life insurance written for spouses, and adds coverage for long-term care expenses. A large single premium funds the policy. The insurance company pays interest, increasing the accumulation. If long-term care services are needed by either spouse, from 75% to 100% of the death benefit is available. When one spouse dies, the benefits remain intact for the surviving spouse, who might also require long‑term care before death. When the second spouse dies, the death benefit is paid to survivors and the policy expires. Because of the large premium and the interest accumulations, a death benefit theoretically remains available even when significant amounts have been paid for Long-term care costs.
One innovative arrangement an insurer offers is a Long Term Care Insurance policy for which the premiums are paid by an annuity. The insured must purchase a single premium deferred annuity, which earns interest and accumulates in value just as any other annuity. The interest, however, is used to pay the premiums for the LTC Insurance policy. This arrangement requires a large beginning annuity and the interest rate to be guaranteed, ensuring the income to pay LTC Insurance premiums.
Recognizing that many people do not want to make annual payments indefinitely, insurers now offer paid‑up LTC Insurance policies similar to paid‑up life insurance. One company makes these policies available with several options: a single premium for an immediate paid‑up policy or a ten‑year or 20‑year schedule, after which premiums are paid for life. For the single premium and ten‑year plans, this particular company guarantees that the rates will never increase. Rates are guaranteed for five years under the 20‑year plan.
While the premiums are higher for paid‑up plans, the insured may elect any of the same options available under the insurer's standard LTC Insurance policies. As an example, an insured paying about $500 annually for as long as the policy is in force could purchase the same benefits with the ten‑year paid‑up feature for about $1,200 annually for a total outlay of $12,000. With the $500 annual lifetime payment, the total cost is unknown. If the same person chooses the single premium plan, the cost is less than $10,000.
This section will briefly describe emerging ideas for long-term care funding, some of which are already being tentatively implemented, others that have been suggested as possible solutions to this growing problem. The ideas discussed here are those that may involve life insurance products, but might alternatively be funded in other ways.
One solution currently available is to use a reverse annuity mortgage (RAM) to convert equity in a home to a stream of income. This arrangement is also called home equity conversion. The idea for RAMs arose from the fact that many older people have a significant portion of their assets in their homes. One study showed that more than 80% of older homeowners have no mortgage, so all of the home's value is theirs, but it is not a liquid asset. The home equity conversion approach can turn the home's value into liquid assets available to pay current expenses.
The theoretical essentials of how a RAM should work are as follows: The homeowners sell their residence to a financial institution (insurance company, bank, or savings and loan, for example), which provides the sellers with a lifetime annuity and guarantees to rent the property back to the sellers. Each annuity payment is reduced by the rent payment. The remainder of the annuity payment is income the former homeowners may use for any purpose, such as paying for long‑term care costs.
That's the theory. In actual practice, the financial institution is likely to place restrictions on the arrangement. First, to cover its risk that the home's value could decrease, the financial institution may restrict the annuity to anywhere from 60% to 80% of the home's current value at the time the RAM goes into effect. Second, instead of a lifetime income, the former homeowners might be limited to a ten‑year period of guaranteed income. While this gives homeowners a larger monthly income, they can outlive it. As a result, these arrangements are more attractive to the very elderly than, for example, to those who, have just retired at age 65 and are likely to live longer than ten years, after which they would have to find somewhere else to live.
Obviously, there are risks in RAMs, both for the financial institution and for the homeowner –– potential problems that must be worked out before RAMs can become a widely used solution. Some experts suggest that partnerships between financial institutions and long‑term care providers can offset the risks each party takes, while guaranteeing both residence and care for the homeowners. For example, a continuing‑care retirement community (CCRC) could be paid an entrance fee in installments from the RAM while the former homeowner remains in his or her home, so the CCRC is not incurring costs for the individual during this period. After a guaranteed period of living in the home or when the need for long‑term care requires the individual to transfer to the CCRC, the financial institution sells the home and the annuity continues to provide income to pay the monthly CCRC fees.
Several experimental projects called Social/Health Maintenance Organizations (S/HMOs) have combined the principles of traditional HMOs, providing both care and coverage for medical needs, with care and coverage for long‑term care needs. These demonstration projects have been funded in part by the federal government as a Medicare experiment intended to provide comprehensive care packages that Medicare cannot fund and most people can't afford through private insurance. Like HMOs, the service provider is also the insurer, but in S/HMOs, additional social services are available, including long‑term care. Where the demonstration programs exist, Medicare recipients may receive this type of care rather than regular Medicare coverage. The government then reimburses the S/HMO under the Medicare provisions. Long‑term care services are funded in part by Medicaid and in part by user co‑payments and premiums. Studies of the experiments indicate that S/HMOs are considerably more affordable for the elderly than private LTC Insurance or residential arrangements such as CCRCs.
While S/HMOs are strictly developmental at this time, they show promise for controlling costs and coordinating benefits paid from Medicare and Medicaid while adding additional covered services. Insurers, especially those already involved in HMOs, could coordinate LTC Insurance with S/HMOs and benefit both themselves and S/HMOs with their case management expertise, ability to project costs and avoid adverse selection based on large numbers of enrollees, and help coordinate the roles played by private insurance, Medicare and Medicaid. The emergence of the state/private insurance long‑term care partnerships discussed elsewhere is a related development where private insurers and the government cooperate to provide funding for needed services. Some advocates believe S/HMOs can fit into such partnerships to help ensure affordable long‑term care with less expense to the government.
Earlier, mention was made of an effort by a congressman to introduce legislation to help alleviate the long-term care problem of Medicaid and of the citizens, by providing an up-front tax deduction of LTCI premiums. We eagerly await the outcome of that legislation. In the meantime, another proposal has languished in Congress for some time that does not involve long-term care insurance. It was introduced at least three years ago, and is mentioned here as it is quite possible that if congress addresses the long-term care issue, this may be what is proposed.
The proposalfor funding long-term care costs was a long‑term care IRA (individual retirement account) designed especially to pay for long-term care and eligible to receive special tax incentives. While conventional IRAs can be used for this purpose, special tax treatment could encourage people to purchase long-term care IRAs and receive funds for long-term care without paying the penalties assessed against regular IRAs.
For example, provision could be made to eliminate the penalty for early withdrawal if the funds are used to pay for long‑term care. Other suggestions are that, instead of being fully taxable income when withdrawn, only 50% of the long-term care IRA withdrawal would be taxed if used to pay for LTC Insurance or only 80% if used to pay long-term care expenses directly. This taxing arrangement was introduced in Congress several years ago, but no action has occurred.
In the earlier discussion of Florida’s proposed legislation to correct Medicaid in the state as it is about to bankrupt the state, the solution presented to the legislature was to make Medicaid, including long-term care, as part of a private program of managed care, whereby Medicaid patients would associate themselves with HMOs or similar managed care organizations. One of the provisions would allow a person to find another health care provider and the state would pay the premium to the patient. If the individual did not want to use the provider, they would have the money to do with as they pleased, within some guidelines undoubtedly, but at this stage, it does appear that they may have the option of purchasing LTCI.
This sound interesting, but when it is realized that patients would have money to pay for health care on a condition that already exists –– that pretty much kills the idea of any insurance being offered. However, something may come out of this program for the insurance industry yet. The problem, at this stage, seems to be that they want to close the barn door after the horse gets out…
As the long‑term care burden on the public becomes greater, both through government programs and expenses paid for personal long-term care, possible solutions will continue to be advanced. Other suggestions include life insurance policies that automatically convert to long‑term care policies at a stipulated age. While such conversions are available now, the conversion is not automatic. Proponents believe continuing life insurance in force for the very elderly is less important than providing funds for long‑term care that otherwise may be paid for by taxpayers. Another recommendation is for mandatory Long Term Care Insurance; just as auto liability insurance is now mandatory, again citing the public burden that can result when people do not voluntarily retain adequate financial funding for uncertain events that could occur in the future.
Finally, there are those who believe the Federal government's entry into the long‑term care coverage arena is not only inevitable, but also necessary. However, serious studies undertaken by government bodies such as the Pepper Commission, for example, indicate that the costs of long‑term care are too great to ever incorporate into a Medicare‑like program. The same conclusion appears to have been reached by designers of the health care bill signed into law in 1996 and becoming effective January 1997.
This legislation sends a signal to the health care industry that private organizations and LTC Insurance policies purchased by individuals would best serve long-term care. How the industry will respond remains to be seen. The question is, really, how does the public respond?
Presently California, Connecticut, Illinois, Indiana and New York have established long‑term care "Partnerships,” between state Medicaid programs and private insurers writing long‑term care Insurance. The basic goals of these partnerships are two‑fold:
The individual details of each state's program differ, but the general principles are the same. Each state developeda set of benefits and provisions required being included in any private Long-term Care Insurance policy to be used in the program. Insurance companies were invited to write LTCI policies on that basis in order to offer the policies as part of the state plan. Typically, the states require more liberal benefits and provisions and more built‑in consumer protection at a reasonable cost than many LTCI policies otherwise provide. Examples of some required benefits and provisions are:
The policies must be approved by the state, which then informs interested consumers of the names and phone numbers of insurers whose policies have been approved for the partnership program. Usually, more than one type of policy is available to allow different price ranges, but all must at least meet the state's minimum guidelines and some policies may exceed the guidelines. Insurers may offer other policies to be sold in the state, but only those approved by the state for this purpose are eligible to participate in the state/insurer partnership.
The state/private insurer partnerships, while not applicable to every conceivable service, apply broadly. In addition to nursing home care, asset protection applies for home health skilled nursing, home health aides, personal care attendants, therapists, homemaker services, adult day care, respite care, and possibly others. However, an individual must pay for certain services out‑of‑pocket, with no asset protection provided. Examples are residential living facilities other than nursing homes, ambulance use, and chore services.
From the state's standpoint, it is possible to delay or completely avoid incurring Medicaid charges. Remember that the average nursing home stay is about two and one‑half years, but less than 90 days for most people. If a policyholder recovers before the policy benefits expire or before of unprotected assets are spent, the state would not incur any Medicaid expense for this person.
From the individual's standpoint, there is the retention of assets and thus the avoidance of virtual impoverishment that normally occurs before one is eligible for Medicaid. Without this type of plan, one would have had to dispose of most of their assets before qualifying for Medicaid. Then, if they were to recover after a short time and be able to live independently again, they would have no assets left to support themselves. As a result, the person would likely still be receiving public assistance of some sort.
As these partnerships currently exist, the primary drawback is that once an individual buys into it, he or she is essentially handcuffed to the state. The fact that assets are protected under New York's partnership program means nothing if an individual moves to Arizona where no such plan currently exists. It is possible that states may begin to reciprocate, but very few states are presently involved in the partnerships. At least one state's information package warns individuals not to participate in the plan if they intend to permanently relocate in another state.
Another slight disadvantage is that the partnerships protect assets, but not income. So, individuals who receive company pensions or rental income, for example, must pay some expenses from that income.
These plans are not for everyone –‑ just as LTCI policies in general are not for everyone. The guidelines for who should not participate are essentially the same as those for buying a standard LTC Insurance policy. People who have very few assets to protect have no reason to join the program. As a general rule, if assets are not greater than the cost of a year in a nursing home, the individual will qualify for Medicaid very quickly anyway. In addition, people with few assets and low income might not be able to pay the premiums for the LTC Insurance. The states do not encourage individuals to short‑change basic living needs in order to pay for LTC Insurance.
If sales activity occurs in states where no state/ private insurer LTCI partnerships exist, knowing about the partnerships is primarily of informational value. An agent might operate in a state that is currently considering such a plan, in which case, having the basic information at this point gives him a head start on understanding in general how such a partnership will work in a particular state. Even if the state is not presently contemplating development of such a plan, these partnerships may prove to be successful enough that all states will eventually adopt them.
On the other hand, if an agent does work in a state where these plans are available, they will need to know a great deal more if they want to broaden their field of action to include LTCI partnership policies. In order to get started:
Each participating state has developed strict guidelines for agent education about LTCI partnership policies. The insurers and the state insurance department are sources for the precise data necessary to sell these policies.
This does not mean that one cannot sell other LTCI policies in a state that has a long‑term care partnership with approved insurers. However, those other policies will not protect assets from Medicaid impoverishment rules. Therefore, in such states, the agent should carefully consider the individual circumstances of the clients they serve and decide whether the state‑approved policy or another policy is the best choice for those people. Remember, too, that a certain segment of the population will do everything possible to avoid "going on welfare." These people may prefer and be financially able to purchase LTCI policies that have no connection to the Medicaid program.
People who purchase an approved LTC Insurance policy are then able to qualify for Medicaid while protecting assets in a dollar amount equal to the dollar amount of benefits they receive from the insurer to pay long‑term care costs. This is in addition to the assets that are already exempt and need not be spent down in order to qualify for Medicaid. There is no dollar limit on the amount of assets that may be protected; the dollar-for‑dollar offset applies up to the maximum benefit the policy pays. In addition, essentially any type of asset may be protected, including stocks, bonds, certificates of deposits, bank accounts, life insurance policy cash values and second homes. The value of the primary residence may also be protected for a single person; without the plan, the home is exempt only if a spouse or dependent remains in it after the individual begins receiving long‑term care.
Since only a very few states at this time are involved in these programs, details as to all of them would be counterproductive as every state varies somewhat, although the main purpose remains the same.
New York is the most recent of the states to expand the partnership program. If consumers buy LTCI through the program and use up their private coverage, New York will then allow them to use Medicaid benefits without first requiring them to use of their assets, as do all of the partnership states. Presently, NY has the “3/6/50” plan that provides coverage for 3 years for nursing home benefits, or 6 years of homecare benefits at half (50%) of the nursing home benefit. The NY insurance department wants to add 3 new plan design options, including a “richer” plan, the 4/4/100 plan – 4 years or nursing home benefits, 4 years of homecare benefits at 100% of the coverage.
Indiana has done a remarkable job in creating this plan (personal opinion) and the statutes supporting this plan has some interesting provisions which may not be applicable to other states, however if their plan proves quite successful, the idea could spread to other states. One of the advantages of a state taking such action is that it helps to prevent the creeping spread of federal jurisdiction of the insurance industry.
The purpose of the program is to “(1) provide incentives for individuals to insure against the costs of providing for their long term care needs; (2) provide a mechanism for individuals to qualify for coverage of the costs of their long term care needs under the Medicaid program without first being required to substantially exhaust all their resources; (3) assist in developing methods for increasing access to and the affordability of a LTCI policy; (4) provide counseling services to individuals in planning for their long term care needs; and (5) alleviate the financial burden on the state’s medical assistance program by encouraging the pursuit of private initiatives.” (Indiana Code Chapter 39.6, Sec. 6(a))
These goals are self-explanatory, with special attention to (2) and (5) above as the primary reasons for the statute.
They use the term “asset disregard” to describe the conditions where a purchaser of LTCI insurance can disregard certain asset requirements to qualify for Medicaid. In order to be eligible for this “asset disregard” a person must purchase a LTCI policy with maximum benefits at time of purchase equal to at least $140,000 plus 5% compounded annually beginning 1/1/99. This asset disregard may be extended to Indiana residents who had purchased qualified LTCI policies in other states.
“Asset disregard” is further defined as “…the total equity value of personal property, assets and resources not exempt under Medicaid regulations which at a minimum are equal to the sum of qualifying insurance benefit payments made on behalf of the qualified insured in determining eligibility for the Medicaid program under (IC 12-15-2). “
The following are the two types of asset disregard:
(1) “Dollar-dollar asset disregard” means the amount of the disregard is equal to the sum of qualifying insurance benefit payments made on behalf of the qualified insured,
(2) “Total asset disregard” means the amount of the disregard is equal to the total sum of assets owned by the qualified insured once the qualified has exhausted all qualifying insurance benefits” (760 IAC 2-205)
Not only does this apply to LTCI policies issued by insurers, but also plans of Fraternal Benefit societies, nonprofit health, hospital, and medical services corporations, prepaid health plans, and HMO and similar organizations. This is, of course, not particularly appealing to insurance agents.
Group LTCI must be truly portable and convertible by regulation and the procedure is outlines in the statute precisely. For instance, it provides that a person insured under a group LTCI may be covered under another group LTCI with no preexisting conditions and regardless of health or disability, claim experience of long-term care services.
Premiums charged to an insured for LTCI may not be changed to increasing ages above age 65 or the duration the insured has been covered under the policy.
Medication listed in an application for LTCI and therefore known to the insurer, stops the insurer from rescinding the policy because of that condition.
The policy may not require previous nursing or therapeutic services in a home, community or institutional setting before home health services are covered. The insurer cannot even require the insured to have an acute condition before home health services are covered. The minimum standards for home health care and community care benefits are very insured-friendly and quite liberal.
If the insured does not accept inflation protection (at a rate of at least 5%) then they must sign a waiver stating that they have declined that coverage. They allow certain graphs to be used showing the results of benefits and premiums with and without inflation coverage.
The insurer is required to report each year the 10% of its agents with the greatest percentage of lapses and replacements. The insurer is required to file the percentage of lapses and replacements of all LTCI policies.
In Indiana, an agent must complete 5 hours of Continuing Education in long term care or long term insurance every two years for a total of 10 hours every four year license renewal period.
The loss ratio of the LTCI policies is restricted: “Benefits under individual long term care insurance policies shall be deemed reasonable in relation to premiums provided the expected loss ratio is at least 60%, calculated in a manner which provides for adequate reserving of the long term care insurance risk. In evaluating the expected loss ratio, due consideration shall be given to all relevant factors, including…(a long list of factors). (Dept. of Ins. 760 IAC 2-13-1, readopted to 25 IR 531)”
Under this policy, the triggers are
(1) the insured has a deficiency in two or more activities of daily living;
(2) the individual has a cognitive impairment;
(3) the individual has a complex, unstable medical condition.
The triggers are otherwise that used to make it tax-qualified under HIPAA.
Another advantage of this program to the state of Indiana (and the other states) is the home and community based services waiver for the aged and disabled approved by the (now) CMS and under the Social Security Act which allows Indiana to provide certain community and in-home services not covered in the state Medicaid plan, which are instrumental in the avoidance or delay of institutionalization. This includes case management, homemaker, respite care, attendant care, adult day care and other such community based services essential to prevent institutionalism. (Our emphasis) This, after all, the real reason for the whole program, isn’t it? – and it’s a great reason!
Policies, in general, that are accepted must follow the HIPAA guidelines to be tax-qualified.
Of the most popular LTCI policies offered by 20 of the major LTCI insurers, it is interesting to see what is being offered in the field at this time. Some of the various provisions and policy provisions have been discussed earlier, but there are other features that are worth noting.
Fourteen of the twenty companies reported that they offered payroll deduction.
Nineteen of the 20 policies are tax qualified. That says it all.
Waiver of Premium was offered at various times: three after the elimination period; seven after a 90-day continuous confinement; two after a 90-day period of benefits being paid; four on the first day of benefits being paid; two after 180 days after benefits being paid or daily confinement; one after 90 days of either benefits or 90 days of confinement. One company simply stated “no.”
All but one policy allowed once-in-a-lifetime period for the elimination period, one company renewed at each new claim. Does this not indicate that one should read the policies carefully?
Five of the policies had unlimited accumulation periods, two had “none,” two had 730 days, one had 2 years, four had over-the-lifetime of the policy, one had 20-45 or 100 days; remainder did not respond.
Question asked was “how long of a period off claim before restoration of benefits applies?
Nine had 180 consecutive days; four had 6 months; one had 180 days not critically ill; three had this provision only by rider, and they were all for 6 months. The rest either were N/A or did not respond.
Uniformity in this requirement on these policies – two of 6 ADLs, the ADLs were as required for tax-qualification.
This was quite interesting as it is a relatively new provision/benefit, and 15 of the policies had the care management benefit.
The question as to whether there was a preferred provider for the care management benefit, only 2 of the policies used preferred providers. Two companies countered that that it was up to the personal discretion of the policyholder as to what provider they used.
Companies require a telephone follow-up to the application either by the age of the applicant or by request of the underwriter. Three companies required the follow-up by request of the underwriter; three used them for all ages; the remainder used them either for those with the minimum and maximum age, otherwise they were all over the map. One company followed up from ages 0-24, one under age 71, another ages 56-74, etc. This would indicate that the underwriters would usually use a telephone follow-up for the younger ages and use the personal interview for the older ages.
There is no uniformity as to whether substandard policies will be issued, and if they are issued, on what basis? Nine companies do not accept substandard business. One company, interestingly, would issue a substandard policy only on counteroffers. Two companies identified their substandard underwriting only as “limited.” Three use 25% additional premium to 50% additional premium; one has only a 30%, one has a rate-up of 25-35-50 and 100%. Another goes up to Table E (which is the same as 125%). Another goes from 125% to 150% to 175% to 200% of standard rates.
Leaving this important discussion until the last of the text, it is safe to say that companies are still paying commissions on this business, but if anyone thinks that the commissions resemble the types of premiums enjoyed by those in the life insurance industry, they will be disappointed.
As expected, the majority of the companies that participated in the survey either indicated “varies,” or “contact company.” Five companies came forward and gave an idea as to what to expect: One company reportedly pays 8% - not known if this is a level commission, but a guess is that this company sells mostly group and this would resemble a group premium. Two companies reported 50% the first year, 8% renewals. One reported 55% first year, 7% renewals and another reported 50% first year and 7.5% renewals. At least they provided a “ballpark” figure.
The future of LTCI is in the hands of the insurance industry and the government. The industry has been extremely flexible in recognizing a need, developing policies to meet those needs, and then being able to change and adapt as needed by the consumers and the marketing force. The present generation of LTCI policies has very little resemblance to the original nursing home and home health care policies that were first marketed. The benefits have been liberalized and now encompass a wide variety of benefits and types of care not even considered just a few years ago.
There has been a general shifting around of insurers in this field – at one time there were 121 or more companies that were selling LTCI policies. The production of these plans has been disappointing to some in the industry and the recent increases in premiums indicate that there is still a lot of work to be done in accumulating and digesting claims statistics.
There seems to be a greater appeal in the group area, and this makes sense. Very little “true group” is sold so it is fair to say that the employer receives the benefit of providing an important benefit to the employees without having to have a drain on the company assets. If there is a foreseeable problem with the payroll deduction group (or pseudo or association group) it may be in the pricing. When these plans offer benefits to in-laws and other family members with little or no underwriting, and there are no group participation requirements – it should not be a big surprise to anyone if the rates may need an increase in the future. So far, however, they seem approximately adequate, but this is a “long-tail” business and people are living longer and there are more of them…
In the immediate future, one must just watch the political scene. Many people do not recognize that the federal government has a true group LTCI insurance program for federal employees. This can certainly help the industry when the lawmakers are familiar with the concept of LTCI, face eventual catastrophic results in Social Security unless repaired in the near future, and there presently is an atmosphere of letting individuals take care of their own problems without government interference. Time will tell.
Also, it would be fair to say that there will be continual tightening of Medicaid in respect to nursing home care. States will get more involved in long-term care issues also, as evidenced by the “partnership” states and by the very draconian regulations from California in respect to LTCI and marketing to seniors; and the Florida Medicaid reform proposal. There seems to be enough need for Medicaid as a welfare program for the underprivileged in this nation, acerbated by the influx of illegal immigrants, without providing services to those who could, legally and morally, pay for some or all of their care when they become incapacitated.
Just remember that early in the Clinton administration, when Hillary Clinton presented her government-paid healthcare plan, she was asked by a representative of the health insurance industry as to what they could do to make a living and support their families if they could no longer sell health insurance? Her response was “Then sell long-term care insurance.”
STUDY QUESTIONS
1. Many insurers today offer long-term care benefits outside of LTCI policies; one of the better known methods is
A. by a rider on a Homeowners policy.
B. by a rider on a Life Insurance policy.
C. as an added provision of a Cancer Insurance policy.
D. as part of a Business Interruption Policy.
2. With a life insurance company rider, some riders permit the insured to receive benefits for long-term care
A. but only if there is a terminally ill diagnosis.
B. without a terminally ill diagnosis.
C. if the policy is sold to a Viatical company.
D. but only if the long-term care is in the form of home-health care.
3. When long-term care benefits are part of a life policy, benefits usually are
A. equal to the death benefit annuitized for the life of the individual.
B. expressed as a percentage of annual income of the insured at his present or last position.
C. miniscule and hardly worth talking about.
D. a percentage of the base policy value.
4. When long-term care is provided through an annuity rider, if funds are withdrawn prior to the end of annuity period,
A. there are surrender charges as with any other early withdrawal.
B. the annuity is automatically cancelled and the entire amount is eligible for payments.
C. no surrender charges are made if funds apply to money withdrawn to pay for long-term care expenses.
D. an additional premium or deposit must be made to the annuity.
5. Insurers are developing annuities, life insurance and disability income insurance policies that can be converted to long-term care policies if desired; these are called
A. Personal Casualty Policies.
B. Transformational Policies.
C. Convertible Life Insurance Policies.
D. riders.
6. If a person has considerable equity in his home that he wants to convert to a stream of income so that LTCI premiums can be paid, this is called
A. a Reverse Annuity Mortgage.
B. a Medicaid Equivalent loan.
C. a Reverse Annuity Mortgage.
D. a Home-Equity Financing Premium Loan.
7. The long-Term Care Partnership programs available in a few states, was formed to
A. try to outwit Medicaid.
B. to shift Medicaid-funded long-term care to the public and to shelter assets from the “spend-down” requirements.
C. bring more money into the state’s coffers.
D. produce more competition to LTCI insurers.
8. One of the provisions that help the consumer with the partnership programs is
A. that the insured does not bear all of the premium cost as the state picks up part.
B. all policies are guaranteed issue and there is no underwriting.
C. all policies are issued by mail so there is no agent’s commissions.
D. less restrictive benefit triggers than other LTCI policies.
9. The principal attraction to the consumer of the partnership programs is
A. the fact that there is no retention of assets and thus they are able to avoid the virtual impoverishment that ordinarily occurs before one is eligible for Medicaid.
B. that the premium is much lower than any other comparable LTCI.
C. the federal government backs the program through Medicaid.
D. that it only is available to those who cannot afford the policies.
10. While with a few insurers, substandard LTCI policies or premiums do not exist, but if the company does accept substandard risks
A. all companies are required to accept the same risks at the same basis.
B. it usually is expressed as a percentage of premium.
C. it is required by law to reinsure all of the substandard business.
D. it then becomes a member of the substandard pool where all risks are lumped together for claims.
ANSWERS TO STUDY QUESTIONS
1B 2B 3D 4C 5B 6A 7B 8D 9A 10B