Indiana 8 Hour Long-Term Care
Chapter 5
Policy Options
Policies vary according to the policy options selected by the consumer at the time of purchase. In some states, an existing policy may be modified; in others an entirely new policy would be required.
The List of Possibilities
When a consumer decides to purchase a policy, several buying decisions must be made. These include:
As every field agent knows, clients often prefer to have the agent make selections for them, but this is not wise. Although the agent will be valued for the advice he or she gives, the actual benefit decisions need to be made by the consumer. This means the agent must fully explain each option so that the consumer can make informed choices. In a way, it is similar to the cafeteria insurance plans where employees had an array of choices in benefits. The difference is that the long-term care policies have no limits on the choices that the consumer can make. If he or she is willing to pay the price, absolutely everything available can be selected.
The daily benefit amount is usually the first policy decision, with the second being the length of time the benefits will continue. Both of these strongly affect the premium amount.
The daily benefit is typically between $100 and $300 per day. Many states mandate a minimum figure of $100 per day. Insurance companies will determine the upper possibilities. Obviously, the consumer cannot select a figure higher than offered by the issuing company.
This daily benefit can also have some variations. Some policies will specify an amount (not to exceed actual cost) for each nursing home confinement day. Other policies (called integrated plans) offer a more relaxed benefit formula. These policies have a "pool" of money, which may be used however the policyholder sees fit, within the terms of the contract. This means that this "pool" of money could be spent for home care rather than a nursing home confinement. Benefits will be paid as long as this maximum amount lasts regardless of the time period. The danger in having a pool of money, however, is that the funds may be used up by the time a nursing home confinement actually occurs. Since people prefer to stay at home this may work out well, but it can also quickly deplete funds in a wasteful manner. Policies offering pools of money may have daily caps in the policy, such as no more than $150 per day. It is important to consult the policy for details.
When benefits are paid from a specific dollar schedule for a specific time period, they are generally paid in one of two different ways:
Of course, both methods require that eligibility for benefits first be met.
The length of time that benefits will be paid for a single confinement can have two possibilities. The first one, an indemnity, offers benefits payable for a specified number of days, months or years (depending upon policy language). The second pays whatever the daily cost happens to be. When funds are depleted, the policy ends.
While everyone has an opinion on what is best, if length of stay statistics are used, a policy should provide benefits for at least three years. The average stay is 2.5 years according to federal figures. Of course averages are made up of highs and lows. Some people will only be in a nursing home for three months while others may remain there for five years. Using the average stay, however, is a good medium figure. Since the majority of consumers will not be willing to pay the price for a life-time benefit, three or four year policies are likely to do a good job for them and still be affordable.
Most nursing home policies that also offer home care benefits pay home care at half of the nursing home rate. Therefore, if the nursing home benefit were $100, the home care rate would be $50. It may be wise to simply purchase a home care policy if that is the desire of the individual since home care can be just as expensive as nursing home care in cases where 24-hour care is required.
Inflation protection is considered extremely important, but it is also costly. This is primarily due to the sharply rising costs of long-term care. For the younger ages, it especially makes sense to purchase a policy with inflation protection. At the older ages, the consumer will need to weigh the cost of the additional option with the amount of increase in benefits that will be produced. Partnership plans mandate inflation protection up to the application age of 75. Some industry professionals say this has made Partnership plans unaffordable for younger applicants.
It is nearly impossible to predict the cost of a nursing home twenty years from now, but it is sure to be much higher than current rates. The actual cost depends upon many factors, including location, the services received, and availability of beds.
It is hoped that the inflation protection option will at least offset some of these costs. In reality, the inflation protection, usually a 5 percent yearly increase, is not likely to keep pace, but it will certainly help.
Inflation protection may vary from company to company and even from policy to policy, depending upon the choices made by the consumer, as well as the choices offered by the insurers. At one time, Indiana only allowed a compound inflation benefit, but that is no longer true. Now, both types may be offered. Most state policies offer two types of protection: simple inflation benefits and compound inflation benefits. Simple increases use the base policy benefit, while compound uses the previous year’s benefit amount. As a result, compound inflation benefits provide larger yearly increases.
The following graph illustrates how compounding works with the inflation protection riders.
|
|
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
|
Base Policy |
$100 |
$100 |
$100 |
$100 |
$100 |
|
|
Simple |
$100 |
$120 |
$145 |
$170 |
$195 |
|
|
Compound |
$100 |
$121 |
$155 |
$197 |
$252 |
Inflation protection plans must continue even if the insured is confined to a nursing home or similar institution. Many states are now requiring a signed rejection form if the insured does not accept the inflation protection option. Although this is intended to be consumer protection, it is also agent protection. It assures that the family of the insured will not later try to sue the agent for failing to sell the inflation protection.
There are a variety of waiting or elimination periods in policies. Basically, a waiting or elimination period is simply a deductible expressed as days not covered. The choice is made at the time application is made. Policies that have no waiting period (called zero elimination days) will be more expensive than those that have a 100-day wait. Fifteen to thirty elimination days are most commonly seen.
As one might expect, the longer the elimination period, the less expensive the policy, the shorter the elimination period, the more expensive it is. The formula looks like this:
Zero day elimination = higher cost.
100 day elimination = lower cost.
When considering which elimination period is appropriate, one should consider the consumer's ability to pay the initial confinement. For example, if a thirty-day elimination is being considered at $200 per day benefit, by multiplying $200 by 30 days, you see the consumer would first pay $6,000 (or more depending upon the actual daily rate) before his or her policy paid any benefits. If this is something the consumer is comfortable with, then it may be appropriate to choose a 30-day elimination period.
The specific type of policy to be purchased can be a harder question. Many of the nursing home policies are basically the same, with differences being hard to distinguish. It is very important that the agent fully understand what those differences are before presenting a policy. If the differences are clearly spelled out, such as they are in California, it may not be a problem. In other states, the differences can be difficult to distinguish without contacting the home office of the insurance company.
Some policies may include a home modification benefit. This is expressly intended for modifications that would keep the patient at home and out of the institution. That saves the insurance company money and makes the patient happier. Modifications are typically specified. The insurance company does not want to pay for a kitchen remodel. Rather it is intended for such things as installing grab bars in showers and tubs, widening doorways for wheelchair access, installing ramps for wheelchairs, raising or lowering fixtures, such as toilets and sinks, and so forth.
When home care is possible from a medical standpoint, many long-term care policies will pay to train the caregiver. This is often the spouse. The purpose of this is to save the company money by preventing a nursing home confinement. It is also appropriate because the patient is usually much happier at home in familiar surroundings. Spouses are typically called informal caregivers and do not receive payment for their services.
Additional options such as these may or may not have benefit amounts based on the minimum daily benefit for nursing facility coverage or home care coverage. They also may or may not be subject to the elimination period. The agent will need to determine these answers prior to marketing the product.
Some policies have a restoration benefit in their policy. This means that part or all of used benefits renew after a specific length of time and under specific circumstances. During this period of time, the policyholder must be claim free.
It is common for people in their retired years to have some type of physical imperfection, such as high blood pressure, or arthritis. It is possible that existing conditions at the time of application could present claims soon after the policy is issued. Because of this, companies have what is called a preexisting condition period.
A preexisting condition is one for which the policyholder received treatment or medical advice within a specified time period prior to policy issue. Under federal law, that period of time prior to application is six months. Failure to disclose conditions, which were known to the applicant, can result in claims being denied when benefits are sought for or result from that condition. Medication, it should be noted, is treatment. In some cases, the company will even rescind the policy for undisclosed information.
Once the preexisting period has passed, all medical conditions will be covered. Some policies do not have a preexisting period. As long as the condition was disclosed at the time of application, all claims will be honored. Other policies do impose preexisting periods, but usually no more than six months from the time of policy issue. Policies tend to specifically list preexisting conditions in a separate paragraph in the policy.
Hospitalization may or may not be required prior to entering a nursing home. Some states, such as Indiana, do not allow insurers to require prior hospitalization. Some states do allow it. In states that allow a prior hospitalization requirement, policies typically offer a choice between prior hospitalizations or no prior hospitalization. Those that choose an LTC policy not requiring a prior hospitalization will pay more for the policy.
When prior hospitalization is required in a policy, typically the patient must have been there for three or more consecutive days. They must also have been admitted to the nursing home for the same condition for which they were hospitalized. The nursing home admittance may have to be anywhere from 15 to 30 days following discharge from the hospital.
Non-forfeiture values have begun to be closely looked at by the insurance industry, as well as state regulators. When a consumer has held a long-term care policy for many years, never claiming any benefits, a lapse of the policy means wasted premium dollars and money in the insurance company’s pocket. Federal law requires that companies at least offer a non-forfeiture provision to the prospective policyholder.
Many policies carry a waiver of premium under specific conditions. Waiver of premiums occurs when the policyholder is in the nursing facility as a patient. At a given point, he or she no longer needs to pay premiums, but benefits do still continue. The point of time when the waiver kicks in will depend upon the policy and its language. Some policies specify that the waiver starts counting only from the time the company is actually paying benefits; other policies let it begin from the day of confinement. This does make a difference, unless the policyholder has selected a zero elimination period. If a zero elimination period were selected there would be no difference between the two types.
If the policy waiver of premium begins from the day the insurer actually pays benefits and the policy contains a 30-day elimination period, it would look like this:
30 days + benefit days = waiver of premium satisfaction.
While the period of time can vary, commonly they begin after 90 days. Therefore, it would be 30 days plus an additional 90 days before the waiver actually became effective. The amount of time can vary, but 90 days is commonly seen. If the confinement stops, the premiums are reinstated, but the policyholder would not have to pay premiums for the waived time period.
If the policyholder is paid ahead, most companies will not refund premium, even though the waiver of premium has kicked in. The policyholder would have to wait until premiums were actually due to utilize this feature. Some of the newer policies will, however, make refunds on a quarterly basis for paid-ahead premiums during qualified waiver of premium periods.
Many states now have provisions for unintentional lapses of policies. Both regulators and the insurance companies have realized that this is especially a problem in the older ages and especially when illness has developed. A long-time policyholder, without meaning to, can allow a policy to lapse for nonpayment of premiums. The likelihood of this happening when the coverage is most needed is high. Therefore, many states have provisions, which allows the policyholder to reinstate without having to go through underwriting. Of course, past premiums will need to be paid.
The length of time that can pass and still allow reinstatement can vary. Typically, insurance companies allow a 30-day grace period anyway, but some reinstatement periods can be as long as 180 days (again, past due premiums must be paid). The important feature of this is the waiver of underwriting. The existing policy is simply reinstated as it was before lapse.
Many companies also offer bed reservation benefits. This benefit can be easily misunderstood. It does not mean that the insurer will call ahead to reserve a bed. Rather, it means that if the insured must temporarily enter the hospital, their bed in the nursing home will continue to be paid for. This enables the person to come back to familiar surroundings, rather than go to a new nursing home when they leave the hospital. There are calendar year limitations on this benefit.
Some bed reservation benefits are simply included in the policy; others offer it as an option for an extra premium.
It is now common for nursing home policies to be guaranteed renewable or non-cancelable.
Guaranteed renewable means that the insured has the right to continue coverage as long as they pay their premiums in a timely manner. The insurer may not unilaterally change the terms of the coverage or decline to renew. The premium rates can be changed.
Non-cancelable means the insured has the right to continue the coverage in force as long as they pay their premiums in a timely manner. Again, the insurer may not unilaterally change the terms of coverage, decline to renew, or change the premium rates. Please note non-cancelable policies may not change premium rates.
Please note that the difference between guaranteed renewable and non-cancelable is the insurer's ability to change premium rates.
No policy covers everything. This is also true for long-term care policies. While states will vary to some extent on what may be excluded, some items are fairly standard in the industry. These include, but may not be limited to:
If an insured is receiving benefits and for some reason the policy cancels, most states have provisions, which require benefits to continue. This is called Extension of Benefits. It does not cover an individual whose benefits under the policy simply run out or are exhausted.
End of Chapter 5
2014