From previous discussions it should be apparent that Long Term Care Insurance was developed in order to provide protection against all of the risks of long-term care expenses which could, in many cases, be devastating. Long Term Care Insurance originally concentrated on providing funds for nursing home care, and later, some home health care. Today, Long Term Care Insurance is an insurance product specifically designed to pay for Long Term Care in a variety of situations. One of the primary functions of LTCI is allowing the insured to maintain some control and choice over their life should the need for long-term care arise. Like other forms of insurance, the insured pays a premium to the insurer who agrees to protect the insured against the financial hardship that long-term care can cause, and like other insurance, it transfers risk.
Long-term care insurance covers long-term care in a variety of settings, not just in nursing homes which has the distinct advantage of allowing a much broader scope of long-term care and has the effect of allowing an insured to have greater freedom to choose the facility that matches their needs. An insured has more choice now than in the past because the rapidly growing senior segment of the population has demanded facilities other than just nursing home and home health care. LTCI provides flexibility so that the insureds can afford other types of care; such as assisted living facilities, or continuing care retirement community, etc. LTCI typically pays a daily rate to the care provider, although some policies pay a weekly or monthly benefit. A “good” LTCI policy will cover all levels of care, particularly custodial and personal care, and will provide benefits for adult day care in addition to assisted living facilities and nursing facilities.
LTCI has been a disappointment to some as it has not grown in popularity as well as was expected, but still, within the past ten years LTCI has grown from paying nothing to 5% or more of nursing home receipts and is increasing in percentage each year. The governments—state and federal—have encouraged private LTC Insurance by tax break legislation for the product, plus offering LTCI for federal workers, military and retirees and their families. Congress continues to encourage the purchase of LTCI plans by various bills, including full deduction of premiums and the passing-through of premiums in cafeteria plans (LTCI premiums do not now qualify for tax protection under a cafeteria plan).
It should be recognized that in the world of insurance products, Long Term Care Insurance is a relative newcomer. Therefore, earlier policies were developed without the spread of risk that can determine premiums and benefits on a long-range basis, so early policies were conservative by today’s terms. For instance a three-day hospital stay was required before nursing home benefits would be paid and there were restrictions on the amount of time after a hospital stay that the insured could wait before entering a nursing homes and qualify for benefits. Alzheimer’s disease and other forms or irreversible dementia were usually not provided any coverage. There were levels of care that were required before benefits for custodial care were paid. Contracts were not always guaranteed renewable and inflation protection was not always offered. These policies were designed to provide coverage when Medicare rehabilitation expired.
Around 1987 there were about 800,000 LTCI policies in force in this country. Since that time they have increased at an average annual rate of 21% until at the end of 2000, there were approximately 6 million LTCI policies that generated about $4.8 billion in premium with approximately 80% individual policies, and 20% employer-sponsored group plans. About 8% of the total premiums are for group insurance. Today over 2,500 employers in the U.S. offer LTCI group plans. Recently, studies have indicated that the most rapid growth in LTCI is in the group plans, however most companies are not realizing their expected growth in premiums—leading to the conclusion that the lack of premium growth is in direct relation to the increase in group plans.
Insurers that offered LTCI grew to 143 in 1989 when it was still a new and exciting product, but now there are about 100 or less companies still selling LTCI and about 1/3 of them are Blue Cross/Blue Shield organizations offering these plans only in a few states. There are an estimated 60 life and health insurance companies licensed to sell LTCI policies in more than 40 states and about ten of these companies offer LTC coverage in the form of cash benefits or accelerated payments as riders to life insurance or annuity contracts. It is the general consensus that there is not large enough market to support the current number of carriers, although very recently there have been considerable consolidation of LTCI companies and many other companies no longer offer the plans. Only 10 companies write more than 80% of the LTCI premium.
There are a number of large, well-respected and well-funded companies who are currently in the market and they are determined to build market share. It remains to be seen if they are successful in competing in the LTCI marketplace but their size and financial resources would indicate that they would eventually control most of the LTCI marketplace.
In the past, competition and consumer demands encouraged—some say, “forced”—insurers to offer more features and benefits in order to increase their market share. Many of the benefits in the LTCI policies of today were introduced by consumer pressure and the intervention of the state regulators who were concerned that the policies meet minimum standards so as to protect the consumers. In 1988, the California Insurance Code added an entire section on long-term care insurance (Chapter 2.6.)
Federal and state regulations are covered in detail in a later chapter.
In a nutshell, today’s LTCI policies cover skilled, intermediate, and custodial care in state-licensed nursing homes, and also they usually cover home care services such as skilled or nonskilled nursing care, physical therapy, homemakers, and home health aides provided by state-licensed and/or Medicare-certified home health agencies. Many policies also cover assisted living, adult daycare, and other care in the community, alternate care, and respite care for the caregiver.
Alzheimer’s disease and other organic cognitive disabilities are leading causes for nursing home admissions and these conditions are covered under all long-term care policies sold in California.
It should be apparent that LTCI agents must understand the basic history of LTCI so they can relate changes to old and new policy language. They must stay informed about LTCI legislation and changes in policy definitions, of covered benefits, services and ADLs. Insurers have become increasingly willing to provide benefits for new care and medical developments that may be provided in a variety of facilities.
Agents must be aware of the more restrictive definitions in early policies so that they can compare and analyze differences between modern versions of LTCI policies and earlier versions. This is particularly important in replacement situations, as agents are responsible in determining that the offered LTCI coverage is appropriate. Since many recent changes have broadened coverage, such changes could justify a replacement transaction if the new coverage can be obtained at the same or at a lower premium.
The LTCI market will continue to change as the LTCI business matures and experience hardens. The number and size of companies offering the plans will change, types of policies will change, and—it is hoped and anticipated—the number of insureds increase. Innovations in insurance coverage always occur which lead to market growth, which in turn leads to new issues, new problems and policy changes in benefits and provisions.
Changes will occur as a result of competition and consumer demands, and other changes will occur as a result of government legislation continuing to protect consumers and to refine the benefits. New tax advantages can be expected in the not-to-distant future. Insurers and agents must keep informed on new developments as they occur.
One new LTCI policy has a benefit that allows up to four extended family members to be covered on the same policy, allowing a family to purchase a single policy with one pool of benefits that can be accessed by other family members when necessary. This provides coverage to any member of the family (ages 18-79) and “extended” family members such as partners, spouses, children, parents, siblings, grandparents, grandchildren, stepparents, stepchildren, and in-laws. Children could buy a policy and include their parents if they should need long-term care, and conversely, parents could include children on the policy so if the parents do not use (all of) the benefits, benefits could be passed on to the children.
The policy cost is determined by formula relating to ages of family members at the time they apply for the policy. This concept is interesting and it may also be a less expensive alternative to purchasing multiple individual policies. Of course, there are many questions that must be answered before the policy can be offered, such as underwriting requirements and who is to be underwritten, and other related questions that will arise to avoid adverse selection. Still, this is a good example of evolving LTCI plans.
Trade publications have discussed other changes in the LTCI policies, such as benefits to be paid monthly instead of daily, provisions for benefits for care that is provided by family members, and a provision whereby one day of home care would be equal to seven days of the elimination period, and in the same vein, it has been proposed that there be a “zero” day of elimination period for home care. Dual home-care coverage has been proposed whereby benefits would be paid for home care for an uninsured partner when the caregiver is visiting as a caregiver for the insured. An additional cash benefit has been proposed that would be used for services when the insured remains at home, obviously to encourage the insured to stay at home instead of entering a much more expensive nursing or other type of care facility. It has also been proposed that there be an expanded “partner” definition and discounts would extend to partners other than husband and wife.
(From the California Insurance Code) “No long-term care insurance policy delivered or issued for delivery in this state shall use the terms set forth below, unless the terms are defined in the policy and the definitions satisfy the following requirements: 44
“Medicare” shall be defined as the ‘Health Insurance for the Aged Act,’ Title XVIII of the Social Security Amendments of 1965 as then constituted or later amended, or Title I, Part I of Public Law 8997, as enacted by the 89th Congress of the United States of America and popularly known as the Health Insurance for the Aged Act, as then constituted and any later amendments or substitutes thereof, or words of similar import. … ‘Skilled nursing care,’ ‘intermediate care,’ ‘home health care,’ and other services shall be defined in relation to the level of skill required, the nature of the care and the setting in which care is required to be delivered. … All providers of services, including, but not limited to, skilled nursing facilities, intermediate care facilities, and home health agencies shall be defined in relation to the services and facilities required to be available and the licensure or degree status of those providing or supervising the services. The definition may require that the provider be appropriately licensed or certified.”
The best definition comes from the California Insurance Code: “(L)ong-term care insurance is a contract designed to pay for care when necessary due to the loss of one’s ability to function independently in society whether it be due to an injury or sickness or through the natural progression of growing old and becoming frail.”45
Further, “Long-term care insurance’ includes any insurance policy, certificate, or rider advertised, marketed, offered, solicited, or designed to provide coverage for diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital. Long-term care insurance includes all products containing any of the following benefit types: coverage for institutional care including care in a nursing home, convalescent facility, extended care facility, custodial care facility, skilled nursing facility, or personal care home; home care coverage including home health care, personal care, homemaker services, hospice, or respite care; or community-based coverage including adult day care, hospice, or respite care.”
“Long-term care insurance includes disability based long-term care policies but does not include insurance designed primarily to provide Medicare supplement or major medical expense coverage…” The Commissioner of Insurance approves all individual and group LTCI policies, riders, certificates and outlines-of-coverages, including any long-term care benefits for period of 12 months or more that are part of or amended to a Medicare Supplement or disability policy(s) or certificate(s) are similarly regulated. 46
“Applicant” means either of the following:
(a) In the case of an individual long-term care insurance policy, the person who seeks to contract for benefits.
(b) In the case of a group long-term care insurance policy, the proposed certificate holder.47
“ ‘Certificate’ means any certificate issued under a group long-term care insurance policy, which policy has been delivered or issued for delivery in this state.”48
“ ‘Policy’ means any policy, contract, subscriber agreement, rider or endorsement delivered or issued for delivery in this state by an insurer, fraternal benefit society, nonprofit hospital service plan, or any similar organization, regulated by the commissioner.”49
Every insurance policy that is intended to be a tax-qualified (TQ) long-term care insurance contract must have prominently displayed on the first page of the policy form, application and Outline of Coverage, the statement: "This contract for long-term care insurance is intended to be a federally qualified long-term care insurance contract and may qualify you for federal and state tax benefits." Thos policies not intended to be a TQ policy must have prominently displayed on the first page of the policy, application and OOC, the statement: "This contract for long-term care insurance is not intended to be a federally qualified long-term care insurance contract."50A
Three Types of Policies Can Be Sold in California: 1) Nursing Facility and Residential Care Facility Only, 2) Home Care Only and 3) Comprehensive Long-Term Care (Not all insurers offer all 3 types.)50
California regulations require that any policy or certificate in which benefits are limited to the provision of institutional care must be called a “nursing facility and residential care facility only” policy or certificate and the words "Nursing Facility and Residential Care Facility Only" shall be prominently displayed on page one of the form and the Outline Of Coverage—or similar words if previously approved by the Insurance Commissioner if it is more descriptive of the benefits.51
Definition of Residential Care Facilities for the Elderly (RCFE) Coverage
California regulations state that "residential care facility” must be covered—defined as a “… a facility licensed as a residential care facility for the elderly or a residential care facility” which is defined in the Health and Safety Code. Outside of the state of California, eligible providers are considered as facilities that meet applicable standards for licensing, primarily engaged in “providing ongoing care and related services sufficient to support needs resulting from impairment in activities of daily living or impairment in cognitive ability and which also provide care and services on a 24-hour basis, have a trained and ready-to-respond employee on duty in the facility at all times to provide care and services, provide three meals a day and accommodate special dietary needs, have agreements to ensure that residents receive the medical care services of a physician or nurse in case of emergency, and, have appropriate methods and procedures to provide necessary assistance to residents in the management of prescribed medications."52
F The benefit amount payable for care in a residential care facility must be no less than 70 percent of the benefit amount payable for institutional confinement.
Further, the regulations state that "(A)ll expenses incurred by the insured while confined in a residential care facility, for long-term care services that are necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, needed to assist the insured with the disabling conditions that cause the insured to be a chronically ill individual…" as authorized and regulated as such, will be covered up to a maximum of the maximum daily residential care facility benefit of the policy/certificate. The regulations put no restrictions on who may provide the service, nor do they require that services shall be provided by the facility, as long as the insured is confined in a residential care facility, "…the reimbursement does not exceed the maximum daily residential care facility benefit of the policy or certificate, and the services do not conflict with federal law or regulation for purposes of qualifying for favorable tax consideration" as provided by Public Law 104-191.243
Residential Care Facilities (RCF) and Board and Care homes (RCFE) often do not have the staff to perform all of the needed care for a resident. The law specifies that if this care must be obtained from an independent source that the policy will still pay for the care as long as it was included in the plan of care and the coverage limit is high enough.
In policies or certificates that are not intended to be federally qualified, the threshold establishing eligibility for care in a residential care facility shall be no more restrictive than that for home care benefits, and the definitions of impairment in activities of daily living and impairment of cognitive ability shall be the same as for home care benefits.
In policies or certificates that are intended to be federally qualified, the threshold establishing eligibility for care in a residential care facility shall be no more restrictive than that for home care benefits, and the definitions of impairment in activities of daily living and impairment in cognitive ability shall be the same as those for home care benefits.
It is critical that agents understand and be able to explain the difference between “assisted living” and “residential care,” in respect to their impact on the coverage.
The term “Assisted Living” became popular in the late 1980’s and was used by the retirement industry to describe programs of personal care that are now available in most retirement residences, life care communities and larger residential care centers throughout California.
People often get the phrase “assisted living” confused with “assisted living facility.” Assisted living “services” may be provided in a number of settings including the home, the community or a residential care facility.
Assisted Living Facilities are not licensed as such in the State of California. Long-term care Policies only cover facilities that are licensed as Residential Care Facilities (RCF). These may be advertised as “assisted living facilities” however no such license exists in the State of California.
An unlicensed assisted living facility often offers independent living with on-site services such as meals, transportation, laundry, supervision and assistance with ADLs. Virtually all LTC policies require that a facility be licensed to pay benefits.
HOME CARE ONLY
"Any policy or certificate in which benefits are limited to the provision of home care services, including community-based services, shall be called a 'home care only' policy or certificate and the words 'Home Care Only' shall be prominently displayed on page one of the form and the Outline Of Coverage. The Commissioner may approve alternative wording if it is more descriptive of the benefits."53
"Every long-term care policy or certificate that provides benefits of home care for community-based services shall provide at least the following benefits. Policy definitions of these benefits may be no more restrictive than the following:
'Home health care' is skilled nursing or other professional services in the residence, including, but not limited to, part-time and intermittent skilled nursing services, home health aid services, physical therapy, occupational therapy, or speech therapy and audiology services, and medical social services by a social worker.54
'Adult day care' is medical or nonmedical care on a less than 24-hour basis, provided in a licensed facility outside the residence, for persons in need of personal services, supervision, protection, or assistance in sustaining daily needs, including eating, bathing, dressing, ambulating, transferring, toileting, and taking medications.55
'Personal care' is assistance with the activities of daily living, including the instrumental activities of daily living, provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction. 'Instrumental activities of daily living' include using the telephone, managing medications, moving about outside, shopping for essentials, preparing meals, laundry, and light housekeeping.56
'Homemaker services' is assistance with activities necessary to or consistent with the insured’s ability to remain in his or her residence, that is provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction.57
'Hospice services' are outpatient services not paid by Medicare, that are designed to provide palliative care, alleviate the physical, emotional, social, and spiritual discomforts of an individual who is experiencing the last phases of life due to the existence of a terminal disease, and to provide supportive care to the primary care giver and the family. A skilled or unskilled person may provide care under a plan of care developed by a physician or a multidisciplinary team under medical direction.58
'Respite care' is short-term care provided in an institution, in the home, or in a community-based program, that is designed to relieve a primary care giver in the home. This is a separate benefit with its own conditions for eligibility and maximum benefit levels."59
Long-term care policies that offer home care coverage must base the insured’s eligibility to receive benefits on either impairment in two activities of daily living or impairment of cognitive ability.
Requiring “medical necessity” or similar standard as a criteria for benefits (is not allowed).60
"Every comprehensive long-term care policy or certificate that provides for both institutional care and home care and that sets a daily, weekly, or monthly benefit payment maximum, shall pay a maximum benefit payment for home care that is at least 50 percent of the maximum benefit payment for institutional care, and in no event shall home care benefits be paid at a rate less than fifty dollars ($50) per day. Insurance products approved for residents in continuing care retirement communities are exempt from this provision. Every such comprehensive long-term care policy or certificate that sets a durational maximum for institutional care, limiting the length of time that benefits may be received during the life of the policy or certificate, shall allow a similar durational maximum for home care that is at least one-half of the length of time allowed for institutional care."61
Home care benefits shall not be limited or excluded by any of the following:
These prohibitions actually have a dual function, making benefits available when care is needed, and to avoid care that is not necessary and therefore adds to the expense of the care, ergo skilled care cannot be required before benefits are payable for unskilled care if an unskilled person can provide the necessary care. LTCI must provide benefits for care rendered by unlicensed providers if the state has no licensing requirements for that particular service.61A
Only those policies or certificates providing benefits for both institutional care and home care may be called “comprehensive long-term care” insurance.62
A majority of those who purchase LTCI policies, purchase comprehensive policies—normally because the Comprehensive Plan covers care both home-care and care in a facility. While a comprehensive policy is more expensive, most people want to have coverage for care, and do not want to “gamble” on whether the needed care is furnished at home or in a nursing care of other facility. The comprehensive policy represents choices and control to the insured when they need care and provides a financial incentive for the insured to stay our of a nursing home as the benefits are available to pay for care in the least restrictive setting plus flexibility.
As a general rule, most of the elderly citizens want to stay at home just as long as is humanly possible, however, as discussed earlier, healthcare at home can be more expensive than facility care in some situations. Unless the person has adequate resources or insurance, plus a good support system of friends and family, there is little likelihood that they will be able to stay in their home and receive necessary care.
Nearly all LTCI insurers offered homecare-only policies in the past, but with the liberalization of benefits, if the insured is unable to receive care in their home, then they would still be able to use the policy benefits to receive care in an assisted living care in a residential care facility—a close semblance of “home.”
A reimbursement policy pays for the actual services that the insured receives. “Reimbursement benefits payment by the insurance company to the insured for the actual expenses incurred by the insured, such as medical expenses.”62 For example, if a nursing home charges a patient $250 a day and the LTCI policy limit is $200 a day, then the policy will only pay the $200 per day. If the nursing home charges $150 a day, then that is what the policy will pay – “up-to” is what these policy benefits are sometimes called.
Technically, indemnity is compensation for a loss. In a property and casualty insurance contract, where one usually hears of this term, the objective is to restore an insured to the same financial position after the loss that he/she was in prior to the loss. In life insurance, a payment of a predetermined amount does not make a life insurance policy a contract of indemnity. For hospital indemnity and other health insurance plans, “Coordination of Benefits” clauses are designed so that the insured cannot profit from an illness.
In respect to the “pool” of money concept typical in LTCI policies, basically an individual’s total benefit is determined by multiplying the daily benefit chosen by the benefit period. Simply put, if the policy has a $200 daily benefit and has a 3-year benefit period (1095 days), the amount of the “pool” is $219,000. Therefore, under an indemnity policy, if the insured had $200 a day benefit for every day he was disabled and if he required at least one visit each day from a home care provider who only charged $100 per day, after 3 years the benefits cease. Under a reimbursement plan, he would have been reimbursed the actual cost, therefore his pool of money would last more than 3 years. This would be important if the insured was still alive and disabled after 3 years (1095 days).
Another advantage of indemnity plans is that under the reimbursement plan, only licensed caregivers can provide services, but with an indemnity plan, it may let the insured pay family members or informal caregivers who cost less than licensed providers. Indemnity policy providers maintain that their claims don’t cost much to process, less overhead, so the premiums should be less. Reimbursement insurers maintain that their premiums are lower because claims for reimbursement claims costs tend to be lower. Actually the jury is still out on this and the premiums are nearly the same, but it is possible that the indemnity plan insurers may have to play catch-up in 10 years or so as they would still have funds outstanding earmarked for claims where the reimbursement plan would have paid all their claims.
At claims time, if the plan is indemnity, then the money goes to the insured that writes the checks. With a reimbursement policy, the insurer requires only one claim form a year for each service provider – after that the provider bills the insurer.
The “Care Manager” or Care Coordinator” – discussed later – comes into play in determining the difference between the plans. With an indemnity plan, usually it is up to the insured to provide a care manager or hire a professional to arrange these things. The reimbursement company provides the insured with a company-paid care manager. This leads to a debate as the indemnity company will maintain that the paid managers are actually paid “gatekeepers” who may be unwilling to certify the care needed by the insured. The reimbursement company will maintain that this is not true, the care managers have no axe to grind and have no motive other than to assist the insured when they need help the most.
Some insurers have blurred lines a little by offering an indemnity option, a cash benefit rider, on its reimbursement plan.
Many times when the insured starts receiving benefits the extra cash can come in handy to pay for up-front expenses. Insureds must be aware, however, that under even TQ policies, cash or “per diem” benefits that are not paid in reimbursement of actual LTC expenses might be subject to tax if they exceed the amounts allowed by the IRS. Refer to IRS form 8853 for the current amount allowable, which is subject to change each year.64
Coverage is written on the basis of a daily benefit amount, with a wide span between the minimum and maximum amounts available. The daily benefit amount generally applies to nursing home care and may or may not vary for care in other types of facilities. Nursing home benefits will be discussed first, and then the text will address various ways policies handle benefit payments for care under other circumstances.
An important point about the daily benefit is that this is usually the maximum amount the policy will pay for a day of care. Most policies stipulate that the insurer will pay 100% of actual costs incurred up to the daily benefit amount. See discussion prior in respect as to how this is handled with reimbursement type policies and indemnity type policies.
Policies available as of this writing offer daily nursing home benefits ranging from as little as $20 per day to as much as $500 per day with most having a maximum of $300. Some policies place a minimum on the total maximum benefits, such as $900,000, and one company has maximum daily benefit of $10,000 per month and another has a maximum of $12,000 per month. Some have no maximum published. Insureds generally may choose from the insurer’s offerings in $10 increments after the minimum. If an insurer offers a minimum of $40 and a maximum of $200, the insured could choose, for example, $50 or $80, (but not $75) in $10 increments up to $200.
The amount of the daily benefit is one of the critical pricing factors—the higher the daily benefit, the higher the premium, everything being equal. The advent of the “pool” approach has created some confusion in this respect.
People who choose a lower daily benefit may not have all of their care costs covered and must make up the difference. In addition to considering the premium that will be required, selecting the appropriate amount also involves at least two factors:
In many parts of the U.S., the $200 per day average will currently cover most nursing home costs. But in some parts of the U.S., especially the West Coast and the Northeast, $300 per day may be more realistic. A professional agent and his clients should both be aware of average nursing home costs where the insured lives. Even better, the insured may know exactly what nursing home he/she would prefer if it were necessary, find out the daily rate, and use that figure as a guideline.
Daily policy benefits cover room and board and skilled or custodial care which are usually included in the package price from an institution. Anything payable by Medicare is not covered by the policy but Medicaid can pay in addition to insurance. All levels of licensed facilities are covered to include Alzheimer’s facilities, skilled care, intermediate care and custodial care facilities. Assisted living facilities (ALF) or RCFEs are covered under all policies with a facility benefit in California. One should always be aware that it is entirely possible to be in a facility, especially an Assisted Living Facility, and not qualify for LTCI benefits.
California Insurance Code requires that every long-term care policy or certificate that provides reimbursement for care in a nursing facility shall cover and reimburse for per diem expenses, as well as the costs of ancillary supplies and services, up to but not to exceed the maximum lifetime daily facility benefit of the policy or certificate. The insurance code does not specify exactly what is included in covered “ancillary services and supplies” but insurers seem to prefer to use the Medi-Cal list as a guide.
It is important to note that, although the policies all pay for ancillary services and supplies, in addition to the daily room and board charges in a facility, charges for these ancillary services (such as physical therapy, speech therapy, audiology, laboratory, as well as charges for patient supplies and prescription drugs) are not included in the calculation of the average daily private pay rate for nursing facilities.
Whether an estimate of ancillary charges should be added to the daily benefit or if the insured will want to pay any ancillary costs from his income or assets, is a matter to be determined by the prospect. In any event, these “extra” charges can be significant in some cases. As in so many determinations in designing the best LTCI coverage, the individual’s financial status is important. The cost of increasing the daily benefit from, say, $200 to $225 to take care of ancillary costs may be so slight that it may be insignificant, or conversely, if the daily benefit amount is straining the budget, then perhaps they could plan on paying the extra costs from their pension plan, etc.
There is one thing that could be kept in mind in making this determination—if daily benefit costs increase as a matter of inflation, so will the ancillary costs. Today $25 a day may not seem like much to pay out-of-pocket, but 10 years from now that amount could have doubled, and it may be harder then to come up with $50. However, if the insured has inflation protection in the policy, with an increase in the daily benefit to account for ancillary costs, such daily benefit increases would also be increasing the increase in ancillary costs.
Determining the exact figure for a specific nursing facility is sufficient only if the policy includes an option to have the daily benefit amount indexed for inflation. Inflation protection will be covered in more detail later, but just be aware that it is very important. Some LTCI policies will be purchased 20 years before they are ever used. Relying on the past as an indicator of the future, a benefit purchased on the basis of today’s costs only is likely to be woefully inadequate 20 –– or even ten years—from now.
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 long-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. Care must be exercised when using “lifetime” terminology as with some policies this means that the dollar amount of coverage that can be used over the insured’s lifetime—a lifetime limit expressed in dollars. Other definitions may show that “lifetime benefit” to mean an unlimited dollar amount of benefits that will last for the lifetime of the insured. There have been those who have purchased policies with “lifetime” benefits that discovered that they really were not “lifetime” as they were depleted during the lifetime of the insured, i.e., they were not unlimited lifetime policies.
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 be 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 benefit period.
" Consumers Report" says 90% of nursing home patients will stay for less than 4 years.181
A most important determining factor for LTCI buyers is the cost of the policy as obviously the longer the benefit period, the higher the premiums (and vice-versa). Many prospects have no real “feel” for a benefit period and are looking to the agent for suggestions, and often may ask, “How long does the ‘average’ person need Long-Term care.” There really is no such “average” of course. Attempting to come up with some kind of “average” or “guidelines” other than that mentioned above, can be tricky as statistics seem to vary as to how long a person who has been in a nursing home for one year, for instance, will stay in the facility on the average. These figures can range from 2 ½ years65 to over six years in another study.
On that subject, a recent survey66 reveals that a 1999 Pennsylvania Medicaid survey showed that patients with dementia stayed twice as long in nursing homes as those without and the average Alzheimer’s patient lives 8 years from diagnosis to death—and there are Alzheimer’s patients who will live for 20 or more years after diagnosis. Then other statistics from the Alzheimer’s Association indicates that a person aged 85 has a 50% chance of developing Alzheimer’s.
Other statistics (that do not really help much in determining an “average”)67 reveals that the most common disorder for nursing home admission is circulatory disease (who, incidentally, require considerable assistance to perform ADLs). These statistics also indicate that about 14% stay 3 to 5 years and about the same amount stay longer than 5 years, which further means that 73% of the patients in nursing homes stay less than 3 years.
There are differences among policies as to limitation of the home and community care benefits. Most companies are moving away from daily limits as monthly or weekly limits provide the greatest flexibility for the insured in that they would not be limited to a specific amount per day but could use the entire weekly or monthly benefit as needed. As an example, if an insured had a daily home care benefit of $50 per day and he was receiving therapy at home three days a week at $150 per therapy session. he would, under the daily limitation only receive $150 a week. If he had a weekly limit of $350 a week (equal to $50 a day for 7 days), then $350 would be paid, leaving him to pay for the additional $100 out of his pocket. If the benefit was monthly, $1500 to stay with the $50 a day example, if he received therapy three times a week for the month, he would pay the difference between $1500 and $1800, but usually therapy would not continue at the same rate for an entire month. (Practically speaking, if the average physical or other therapy sessions in the area equaled $150 per session, then $1800 may be worth suggesting.)
With some policies, home care is limited to a percentage—usually 50% or 75%—of the daily benefit amount paid to facilities. It should be kept in mind, as discussed previously, home care may actually cost more than facility care.
Home care benefits typically cover the services of licensed nurses, aides and therapists. Policies cover certain activities of non-licensed providers and some even pay a limited benefit to the insured’s own children as providers as well. The options of what is covered and under what circumstances vary from policy to policy. It is important for agents to review and compare policies.
Pay for caregivers are paid by LTCI policies in most cases as described later.
All comprehensive policies in California must be written as “integrated policies” or policies with “pooled benefits.”68 This type of policy provides a total dollar amount that may be used for different types of long-term care services, subject only to daily, weekly, or monthly dollar limits for covered long-term care expenses. These are “second generation” policies and popular in today’s environments. In earlier years, a purchaser of LTCI policies would have to guess as to whether they were going to eventually go to a nursing home, or whether they would be able to stay at home. Where home health care was a percentage of the daily LTC benefit, they had no way of knowing whether that would be sufficient, or too much. Crystal balls did not help.
For example, if an insured had a policy that provided 4 years of nursing facility care and 50% (2 years) of home health care, and then spent one year at home before being transferred to a nursing facility, and the insured then returned home, the time spent in the nursing home would be counted against the benefits, so in effect, the “remaining” one year of home health care was gone.
Insurers came up with the LTCI policies where benefits would be “pooled” and then used for whatever form long-term care was needed. To arrive at the “pool” amount, it was simply multiplying the daily benefit by the benefit period (in days). With these policies, the insured can use any amount of the total for any of the covered services as long as there is money in the “pool.”
Another example, a policy with a maximum benefit amount of $150,000 of pooled benefits with a daily benefit of $150 would last for 1,000 days if they spent the maximum daily amount on care. If, however, the care costs less, they would receive benefits for more than 1,000 days.
Every long-term care policy or certificate in California must provide an integrated pool of dollars (a single dollar amount that may be used interchangeably for any home, and community based services, or facility care covered by the policy or certificate). There can be no limit on any specific covered benefit except for daily, weekly, or monthly limit set for home, and community based care and for the limits for facility care. The insurance company is not prohibited from imposing limitations for reimbursement of actual expenses and incurred expenses up to daily, weekly, and monthly limits.
In all comprehensive policies in California, the overall lifetime maximum benefit amount can be used interchangeably between the various covered Home and Community Care, Nursing Facility and/or Residential Care Facility benefits as outlined in this policy. The policyholder could use all of the coverage for facility care, all for home care, all for RCF care or any combination of the three, except when paying for institutional care, the policy will usually pay a certain amount per day as stipulated in the policy, and conversely, when paying for home and community care, the policy pays a certain amount per day, week or month.69
There is no limit on the use of any specific covered benefit, except for daily, weekly or monthly benefit limits that may be set for Home and Community Care benefits and daily benefit limits that may be set for Nursing Facility and Residential Care Facility benefits.
CONSUMER APPLICATION
Mary Alice purchased an LTCI policy with $200 daily benefits and with a benefit period of 3 years (1095 days). This created a “pool” of $219,000. Mary Alice suffers a series of small strokes (TIAs) and after the first TIA, she found that she needed help in getting dressed and bathing, and was not able to drive to the doctors or to the store so she had to hire a caregiver at an expense of $250 per week. This care continued for 6 months and the policy paid $6,000 for caregiver care.
Mary Alice then had another TIA which was more severe and which caused her confinement in a nursing facility for 60 days at a cost of $225 per day. Since the policy had a daily benefit limit of $200 per day, she was personally liable for $1500 ($25 per day for 60 days); the policy would have paid $12,000.
After the 60-day confinement, she was able to return home but she needed a caregiver that would provide her with more assistance than previously, so the caregiver charged $15 per hour. Initially care was needed for 24 hours a day ($360 a day). If the policy’s daily benefit limits were set at $200 a day for home health care, she would have to pay $160 a day out of her own pocket. After 30 days, she progressed to where she only needed care 10 hours a day, or $150 a day, covered by the policy and the policy had paid $6,000 for the 30 days care and she would pay $4,800.
She continued with home health care for 2 years, outlay about $55,000 per year, or total of $110, 000 (assumed covered under the policy’s benefit limitations). Then, as usually happens when a person suffers from TIAs, she suffered a massive stroke and is returned to the nursing home where she stayed until she passes, two years later. The policy would pay $200 a day (assuming, as before, that is the daily benefit limit) for total outlay there of $146,000.
The policy would have paid a total of $280,000:
Policy pays Mary Alice pays .
Initial caregiver $ 6000 -0-
Nursing home-60 days $ 12,000 $1,500
24hr home care $ 6,000 $4,800
Home Health-2 yrs $110,000 -0-
Nursing Home – final $146,000 -0- .
Total $280,000 $6,300
Since the total “pool” amount is $219,000, Mary Alice would have paid a total of $67,300
($280,000 minus $219,000 plus $6,300)
Obviously in this example, $200 a day was not sufficient, however the point here is to show the flexibility of the pool concept in the LTCI policies. Also, there would have been some increase in the daily benefit because of an inflation provision.
A long‑term care policy’s elimination period, sometimes called a deductible period, is a period of time during which no benefits are paid immediately after the insured is qualified to receive long‑term care.
Because the insured absorbs the first costs incurred, the elimination period serves the same purpose as a deductible amount for medical expense or auto or homeowners insurance. The insurance buyer may select a longer period (thus paying more out‑of‑pocket) in order to lower the premium.
Insurers typically offer elimination periods ranging from zero days (no elimination period) up to 365 days, with different insurers offering different options. Shorter periods up to about 90 days are most common, but periods currently available include seven, ten, 15, 20, 30, 45, 60, 90, 100, 120, 150, 180, 270 and to as long as 365 days. The actual periods offered vary from insurer to insurer and it’s unlikely a single insurer would offer all of these choices. For example, insurer XYZ might offer periods of zero, 20, 60, or 180 days, while insurer ABC offers zero, 30, 90 and 365 days. The insurer may also specify the elimination period with no option for the insured to choose.
Under policies that pay benefits for different kinds of care, a single elimination period usually qualifies the insured for all types of care.
For example, assume the elimination period is 60 days. The insured first requires skilled care for ten days in a Skilled Nursing Facility, followed by 20 days of intermediate care in the same facility, then goes home to receive 60 days of intermittent skilled care and custodial care before recovery is complete. Thirty days of the elimination period is fulfilled in the nursing facility. The insured absorbs the cost of the first 30 days at home to fulfill the 60-day period and benefits are paid for the balance of 30 days. When the same elimination period applies to all types of care, this is sometimes called an “integrated” elimination period.
That same term—integrated elimination period—sometimes means that the elimination period must be fulfilled only once during the life of the policy. For example, suppose insured Potter has a policy with a lifetime benefit period. He has fulfilled the elimination period during a nursing home confinement, has returned home and now, a year later, must enter a nursing home again. Potter’s LTC Insurance policy begins paying benefits from the first day of nursing home confinement since the elimination period was previously satisfied. Typical provision.
On the “flip side,” Consumer Reports181 (Who starts out their report on the first page, “Long-term-care insurance may be a lousy deal, but right now it’s just about the only deal.”) maintains that there never is a good time to buy. Since many prospects will have read this report, their conclusions are important. They state that a plan that costs a 50-year old $1,625 annually will cost a 60-year-old $3,100 and a 70-year-old $7,575. Obviously they picked plans that met their criteria as “acceptable,” which means a short elimination period, 4 years of benefits, etc.
They further state that is a person age 40 buys a LTCI policy with a premium of $685 annually, and since the average age of people being admitted to a nursing home is 83, that means that the insured would have to pay for 40 years before knowing whether the policy will even be used.
And of course, there are the premium increases. If an individual cannot pay the increased premium, the insured may have to bail out of that policy and unfortunately that can happen when the insured is retired or has lost a spouse. If they choose not to pay, they may not be healthy enough to qualify for a new policy with another company. All of these things must be taken into consideration.
Insureds may be able to choose different elimination periods for different types of care, such as 30 days for nursing home care and ten days for home health care. At least one insurer specifies that a 90‑day elimination period applies for nursing home care and a 30‑day period for home and community‑based care and the insured may change the periods only by adding a rider to the policy. Another policy offers elimination periods in a range of zero to 365 days for nursing home care, but for home care the insured chooses either seven, 20 or 60 days.
The newer policies generally offer the same care-related elimination periods, and in reviewing 20 policies presently sold in the market today, only one company offered different elimination periods for home care and adult daycare.70
The length of the elimination period is another critical factor affecting the cost of LTCI policies. First‑day coverage (no elimination period) is nice, but costly. On the other hand, an insured whose long-term care begins in a skilled nursing facility will incur fairly high daily expenses that must be paid from personal funds during the elimination period. This means the insured must decide how much he or she can handle financially before the policy begins paying benefits.
For example, assume the nursing home costs $90 per day. The insured selected a 90‑day elimination period. If this individual becomes very ill and must be in the nursing home for a long period, he or she conceivably could be required to pay:
$90 per day x 90 days = $8,100
This $8,100 comes out of the insured’s pocket before any policy benefits begin on the 91st day of care. In addition, remember that most nursing home confinements last fewer than 90 days, so the insured might pay the full cost, having recovered before the elimination period passed, with the result that they will receive no benefit from the policy at all.
The trade‑off’s are between a shorter elimination period (less out‑of-pocket expense) and higher policy premium versus a longer elimination period (more out‑of‑pocket expense) and lower policy premium. Unlike choosing the benefit period, this decision is less of a gamble because it is based largely on finances and people generally know how much of the cost they can absorb. The problem, however, is that people’s financial circumstances change and not always for the better. Someone who believes he could easily absorb the $8,100 mentioned in the previous paragraph, for example, could suffer setbacks such as unemployment or investment losses that would make such a payment difficult or impossible in the future.
In a discussion about benefit periods, the best choice is probably the longest period the insured can realistically afford. For the elimination period, the advice might well be just the opposite: Choose the shortest elimination period that is realistically affordable. An agent should be particularly sensitive to financial circumstances in this regard. People who can afford to buy LTC Insurance, but who are not particularly well‑fixed financially, shouldn’t be encouraged to stretch out the elimination period extensively in order to lower the premium to where they feel it is affordable. There is a school of thought that believes that even a small Daily Benefit policy is better than no policy. Because of the crowded conditions of the nursing homes, a policy of any amount will help admit a person to a good nursing home. When the benefits expire, they usually cannot be moved to the “Medicaid” ward, particularly in view of recent legislation.
However, if such clients eventually need long‑term care, they won’t be happy with a policy that pays only after they have depleted their savings unless they fully and completely understand the situation. Unfortunately, many insureds that require long-term care are not in any condition to remember the explanation made at the time of the sale – another reason that a true professional stays in touch with their customers. Also, if the insured has to have nursing home care and is in no condition to handle the details, family members – frequently who live some distance away – may not be aware of the financial decisions made at the time of the sale. It is important to gather enough information about the clients’ finances to help them make an informed choice and be certain the advice is both financially and ethically sound.
One other thing to take into consideration when discussing this with a senior citizen prospect – Medicare does pay for the first 20 days entirely after a 3-day hospital confinement, and for the 21st-100 day, everything except $114 (2005) is paid. Many persons will take the chance that they may be in a position where Medicare does not pay, such as for some mental deterioration where they would not be in the hospital for 3 days – but the chances are greater that they would go into a nursing home after having been in a hospital because of accident or illness. Some LTCI policies offer 100-day elimination periods for this very reason.
Consumer Reports181 takes a different tack, maintaining that “Don’t choose a policy with an elimination period longer than 30 days unless you think you will have money saved to pay for a longer period.” They appear to have completely ignored the fact that Medicare will pay for nursing home care in a number of situations.
F If a Care Manager or Care Coordinator is involved, many policies will waive the elimination period, making the length of the elimination period, a moot point.
Elimination periods can be defined differently from policy to policy. Most policies define a day of elimination as meaning a day of care, but a few define elimination as a calendar day with no care required.
The longer the number of days accumulating towards the elimination period, the more consumer-friendly is the plan. Some policies do not impose a waiting period for home and/or community care whereas other policies impose the waiting period before any covered benefits are payable.
Obviously, an elimination period that may be satisfied only once during the lifetime of the policy is preferable to one that requires that the elimination period be satisfied again every time the insured files a claim. Unfortunately, agents have not always explained this difference adequately or correctly.
California regulations state that LTCI policies cannot contain a provision establishing a new waiting period in the event existing coverage is converted to, or replaced by, a new or other form with the same insurer, except when there is an increase in benefits voluntarily selected by the policyowner.
CONSUMER APPLICATION
Marie had a LTCI policy with Acme Life that covered nursing home care with $100 daily benefit and an elimination period of 30 days that she had had for 4 years. She had used benefits when she was injured in an accident and used the benefits for 47 days.
Recently her agent told her about the “pool” concept the company offered on their new LTCI policies. She then wanted to replace her old policy with the new type of policy, and at the same time,
(Continued)
increase her daily benefit from $100 to $200. The agent informed her that if she stayed with the $100 daily benefit, there would be no elimination period with the new policy as she had already satisfied the 30-day elimination period. However, if she selected a daily benefit of $200, then she would have a new 30-day elimination period.
STUDY QUESTIONS
1. Originally, what later became known as Long Term Care Insurance was first offered as
A. nursing home coverage.
B. home health care coverage.
C. major medical coverage.
D. Medicaid Supplemental insurance.
2. At the end of the year 2000, Long Term Care Insurance policies numbered approximately
A. 8,000.
B. 16 million.
C. 6 million.
D. 50,000.
3. The leading causes for nursing home admissions are
A. accident and recovery.
B. therapy treatments and stroke victims.
C. heart attack and stroke.
D. Alzheimer’s disease and other organic cognitive disabilities.
4. The “Health Insurance for the Aged Act” is defined in LTCI policies and regulations as
A. Medicaid.
B. Medi-Cal.
C. HIPAA.
D. Medicare.
5. There are three types of LTCI policies that may be sold in California: Nursing Facility & Residential Care Only, Home Care Only, and
A. Limited Short-Term Hospitalization.
B. Community Care and Residential Care Only.
C. Comprehensive Long Term Care.
D. Medi-Cal Supplemental.
6. In California, Assisted Living Facilities
A. are illegal.
B. are not licensed as such.
C. have replaced Residential Care Facilities and must be licensed.
D. are considered as part of nursing home care, and are so licensed.
7. In California, the benefit amount payable for care in a residential care facility must be
A. in excess of the accumulated premium for the prior five-year period.
B. no less than 70 percent of the benefit amount payable for institutional confinement.
C. no less than 50% of the benefit amount payable for home health care.
D. equal to the benefit amount payable for institutional confinement.
8. Determining the exact figure for a specific nursing facility is sufficient only
A. if the initial daily benefit is 125% of the average cost at time of application.
B. if the final figure is approved by the Department of Insurance.
C. if the policy includes an option to have the daily benefit indexed for inflation.
D. if any type of inflation indexing is not present.
9. With an LTCI policy, the longer the elimination period
A. the lower the premium.
B. the lower the daily benefit period should be.
C. the higher the premium.
D. the less chance of the insurer being around when claims are made.
10. Elimination periods
A. are the same with all policies.
B. are not allowed in California with Comprehensive policies.
C. have little effect on the financial cost of long-term care.
D. may be required once-in-a-lifetime, or maybe required for each claim.
ANSWERS TO STUDY QUESTIONS
1A 2C 3D 4D 5C 6B 7B 8C 9A 10D