Revised 11/2005
Long Term Care Insurance
The Changing Times
Everything is farther away now than it used to be.
It is twice as far to the corner, and they have added a hill.
I have given up running for the bus; it leaves faster than it used to.
It seems to me they are making the steps steeper than in the old days.
And have you noticed the smaller print they now use in newspapers?
Theres no sense asking anyone to read aloud; everyone speaks so softly.
The material in my dresses seem much skimpier now and stingy around the hips.
People are changing, too. Doctors are much younger now than they used to be.
An old schoolmate had aged so much that she didnt even recognize me.
Of course, even mirrors seem to be off; I look so old in mine at home.
Author unknown.
Understanding the Need
As the previous chapter discussed, Part A of Medicare will pay only for skilled nursing home care and only for a maximum of 100 days. Medicare covers only skilled care; no coverage is offered for either intermediate care or custodial care. There is no guarantee that an individual will be classified as needing skilled care for the full 100 days. In fact, it is likely that such care will be needed for much less than 100 days before the level of care is downgraded to intermediate or custodial. Once downgraded, Medicare will pay nothing towards the nursing home costs. Once Medicare stops paying for the nursing home so will the Medigap insurance policy. It is at this point that the beneficiary will be writing those big checks to the nursing home themselves.
Defining Long Term Care
There are different types of care that can be long term in duration. Most people automatically think of long term care as nursing home care. In fact, long term care policies are often referred to as nursing home policies. At one time, that was fairly accurate since the policies all seemed to aim at benefits for the nursing home. Today, there are many more choices than that.
The first step is defining the types of care that might be included for a duration of time, usually 90 days or more. In fact, the tax qualified long term care plans specifically refer to stays of 90 days or more. The non-tax qualified plans do not place this time requirement on their benefits. This will be looked at more closely later in the chapter.
Every industry has terms specific to it. However, few industries have so much at stake financially as does the long-term care industry. If you call a computer component a dilly-bob you are not likely to suffer a financial setback. When it comes to purchasing a long-term care insurance policy, it is vital to understand the terminology to avoid making a purchasing error that can cost thousands of dollars later on. There is a lot of difference between a nursing home and community based care, or skilled nursing care and custodial care. It is the understanding of these terms and what they mean in relationship to benefits that the consumer looks to the agent for guidance on. Obviously, few consumers want an agent to come to their home and try to make them memorize terms. What they do want is the confidence that the agent will guide them into the products that meet their needs.
Terminology
Some terms are universal; all policies use them in a consistent manner. Other terms are directly related to long-term care policies.
COMMUNITY BASED
INSTITUTIONAL
ADULT
ACUTE
CHRONIC
CONVALESCENT
CUSTODIAL
HOME
HOME HEALTH
INTERMEDIATE
RESPITE
SKILLED
MANAGED LONG TERM
MANAGED LONG TERM
HOME HEALTH AIDE is a person who is providing care under the supervision of a doctor, licensed professional nurse, physical therapist, occupational therapist or speech therapist. The care provided may include many things, including ambulation and exercise, assistance with self-administered medications, reporting changes in a covered person's conditions and needs, completing appropriate records, personal care and household services.
CASE MANAGER, also called a case coordinator, is an individual qualified by training or experience to coordinate the overall medical, personal and social services needed on a long-term basis. The types of services given by the case manager can vary, but they often include assessing the individual's condition to determine what services and resources are necessary and who might appropriately deliver them, the coordination of elements of a treatment or care plan and referral of patients and their families to the appropriate medical or social services personnel or agency, control coordination of patient services and continued monitoring of the patient to assess progress and assure that services are correctly delivered. These activities and duties are performed under the supervision of appropriate medical personnel.
A GATEKEEPER is any provision in any contract establishing a threshold requirement, which must first be satisfied before an insured person is eligible to receive the benefits promised by his or her insurance contract. It is generally referred to as a gatekeeper provision. The gatekeeper may be a number of specific things, including (but not limited to) a three-day prior hospitalization requirement, recommendations of the attending physician and recommendations of a case manager.
Most consumers simply want to know they will be covered for the costs of long term care services. Getting them to understand the conditions of coverage can be difficult. Getting consumers to remember what has been explained can be impossible. Therefore, an agent's best defense is to handle only those policies with the least limiting conditions of coverage.
Having reviewed the reasons why long-term care products are needed, what actually goes into the buying decision? There are several key elements:
What is the consumer's greatest concern: home care, assisted living, the nursing home?
What does nursing home care cost in their town.
Do they have family members who need to be part of the buying decision?
How fast are prices rising in their part of the country?
How long a duration time is desired: 3 years, 4 years, lifetime?
Is an inflation guard desired?
Would the consumer be happier with an integrated plan so that all types of care are an option?
Does the consumer simply want a basic nursing home plan?
Will the cost determine the benefits purchased?
Is the consumer comfortable with the company presented?
What is the company rating?
There may be other issues involved since no two people are alike in their personal concerns. As an agent, whatever the concerns are, each must be addressed.
There is the perception that insurance agents use high pressure techniques to make the consumer buy. While we believe that most agents do not perform this way, we also realize there are a few who do. As a result, all agents suffer the consequences. Unfortunately, consumers also suffer them. How? By being reluctant to purchase those products that would greatly benefit them.
Skilled Care under
Medicare Part A
Under Part A of Medicare, a Medicare beneficiary has benefits for skilled nursing home care only and only for a limited period of time (up to 100 days). There is often much confusion regarding this benefit. Medicare covers only skilled care and no other type. That means that neither intermediate nor custodial nursing home benefits will be paid for by Medicare.
To qualify for Medicare benefits for skilled nursing care, the facility must be licensed to give such care. Most facilities are so licensed. In a skilled nursing facility, Medicare will cover skilled (and only skilled) care from the first day through the 100th day of confinement. The first 20 days are covered at 100 percent. The next 80 days have a deductible per day, which the beneficiary must cover before Medicare will pay anything more. As with other Medicare deductibles, the deductible amount may vary from year to year.
Medicare pays very little for care in a nursing home:
|
Skilled Nursing Home Benefits |
|
Benefit: |
Medicare Pays: |
Amount Not Paid: |
|
First 20 Days |
100% of approved charges |
Zero |
|
21st to 100th Day |
All but a daily co-payment |
The daily co-payment |
|
Beyond 100 days |
Nothing |
All Charges |
To qualify for nursing home care under Medicare, the following conditions must be met:
1) The doctor certifies that the care is necessary.
2) Skilled nursing or skilled rehabilitation services are received on a daily basis.
3) The facility is Medicare approved.
4) The stay is not disapproved by the facility's Utilization Review Committee or a Medicare designated Peer Review Organization (PRO).
5) The care must be "rehabilitative." In other words, the care must be designed to improve the patient's physical condition.
Paying for Intermediate
& Custodial Care
In reality, Medicare, according to Consumer Reports magazine, can be relied on to pay very little in long-term nursing home care. In fact, only two percent of the time will Medicare actually pay anything. This is due to the fact that only skilled care is covered. A beneficiary is much more likely to require either intermediate or custodial care.
According to the United States Department of Health and Human Services, the average length of stay in a nursing home is 456 days. Some sources may state as long as two and a half years and this is understandable. Fifty percent of all nursing home stays are for just three months or less, which has pulled down the "average" figure used by the Department of Health and Human Services.
Long term care, while a very real financial threat, is still something many people are just now considering. Long-term care policies are, therefore, a relatively new market. The majority of policies have been sold only in the last ten years. Even so, many insurance companies and insurance agencies have already established a strong market in this area.
Long-term care insurance is now becoming one of the fastest growing insurance markets. The coverage offered, however, can be very confusing. Many states have set minimum standards for nursing home products and more are expected to do so. Several states have passed specific education requirements in long-term care before an agent may sell the products. This trend is expected to expand to additional states.
What Will a Long-Term
Care Policy Pay?
Policies pay according to the benefits purchased. Therefore, it is very important to know and understand the policy being sold (if you are an agent) or purchased (if you are the buyer). No policy pays for everything. However, it is possible to purchase some very extensive policy benefits - if the buyer is willing to pay the price for them.
The consumer must consider several things when planning to buy a long-term care insurance policy:
1) How much do I think a nursing home will cost by the time I need it?
2) Does it matter to me whether or not the premiums are deductible from my taxes or are benefits my primary concern?
3) Do I want the option of receiving care in my home or the home of another person?
4) How long do I want the benefits available - 2 years, 5 years, for the remainder of my lifetime?
5) Do I simply want a basic nursing home policy or do I want a policy that will cover virtually every potential care need?
While these seem like simple basic questions, they are more than that. The answers to these questions will determine the benefits received at a time when previous choices cannot be changed.
What Exactly
is Long Term Care?
The definition of long-term care does have some variance, depending upon the point of view given. Even though the phrase long-term care can be used regarding various issues, it is most commonly used in reference to nursing home confinements. This is especially true of our older population. For them, long-term care certainly leads, at some point, to a nursing home confinement. In this context, long-term care is care provided to persons with chronic diseases or disabilities who need medical or personal care in some form for an extended period of time. When long-term care definitions are applied to insurance policies, they never apply to hospital care or hospital benefits.
Tax Qualified Versus
Non Tax Qualified
Thanks to Congress, there are now two types of long-term care policies offered: tax qualified and non-tax qualified. Qualified plans usually have a Q on the brochures and related forms to signify the type.
The two plans have been a source of confusion for consumers and agents alike.
Many have thought that a tax qualified plan would automatically be the best
choice, but that is not necessarily true. In fact,
Tax qualified plans were born of the federal governments recognition of the need to promote purchase of nursing home protection. Since the federal government and the states are footing much of the cost through Medicaid after consumers have spent all of their own money, the government realizes that they need to promote long-term care sales. It was thought that developing a tax incentive might be the key. Unfortunately, the government gave with one hand but took back with the other. The actual law came about through the Kennedy-Kassebaum bill, called the Health Insurance Portability and Accountability Act, which was passed in 1996 and signed into law by President Clinton.
The law itself is quite detailed, but basically the differences are:
|
Non-tax qualified |
Tax-qualified |
|
1. Medical necessity can be a benefit trigger |
1. Medical necessity cannot be a benefit trigger. |
|
2. Activities of daily living: a. 2 of 6 ADLs trigger benefits b. Defined as needing regular human assistance or supervision. |
2. Activities of daily living: a. 2 of 5 trigger benefits (ambulation eliminated) b. Defined as unable to perform without substantial assistance from another individual. c. Licensed health care practitioner must certify expected inability to perform ADLs for at least 90 days or more. |
|
3. Cognitive impairment: a. Not described as severe b. Definition does not apply the substantial supervision test. |
3. Cognitive impairment: a. Described as severe b. Definition does applies the substantial supervision test |
Since the tax qualified plans take away so much, one might think that the amount of tax dollars saved is substantial. Well, not really substantial. Perhaps more like a few dollars saved.
For those who do itemize (because only those people will benefit), they can
deduct their regular medical expenses, including the long-term care policy
premium, if they exceed 7.5 percent of their adjusted gross income, called
These figures represent individual limits, so each person may deduct the allowed amount. How this affects taxation (for those who itemize) depends upon their tax rate. The limitations on the amount of premium that can be deducted change from year to year so it is necessary to consult ones accountant.
Not everyone will receive a tax savings because not everyone will be able to deduct their long-term care premiums even though they purchased a tax qualified plan. To deduct the premiums, several conditions must exist. First of all, the taxpayer must itemize their deductions on their tax returns. Many people in the older age segments do not have enough deductions to warrant an itemized tax return. Nationally, less than 30 percent of all federal taxpayers itemize according to Statistics of Income, a Department of Treasury publication. This 30 percent represents all age groups. Those who are in retirement are even less likely to itemize because their number of deductions, by that point, has been reduced.
Even if the taxpayer does itemize, there is another element involved. In order to deduct the premiums of a long-term care policy, the amount of total medical expenses, counting the premium, must exceed 7.5% of the taxpayers adjusted gross income. If the taxpayer is 65 or older they are likely to be on Medicare. If they have purchased, as most do, a supplemental insurance policy (Medigap policy), they are not likely to pay much, if anything, in medical costs. Prescriptions are likely to be the only real medical expense they have. Reimbursed medical expenses will not count towards this percentage requirement.
Which Policy Is
Best? Tax Qualified or Non Tax Qualified?
There are very well educated people on both sides of this question. It really comes down to personal preference. There certainly are some reasons why a person feels one or the other is better.
How Will Benefits Be Paid?
A major difference between tax qualified and non-tax qualified are the benefit triggers. Every selling agent must understand these differences if they are to adequately represent the products available. When the Act was passed, it set specific terms regarding tax qualified benefits, benefit triggers, and provisions.
It would be easy to assume that all consumers would want to purchase only tax qualified plans, but when benefit trigger differences are presented, consumers often buy the non tax qualified plans instead. What exactly is a benefit trigger? A benefit trigger is the circumstance, typically medical in nature that triggers the start of insurance policy benefits. Every policy contains benefit triggers. For life insurance policies, death is the trigger. In health insurance, when a covered illness or injury occurs, that triggers benefit payments. In nursing home policies, the benefit trigger can be more complicated.
The Inability To Perform An ADL
Before anyone had even heard of tax qualified long-term care policies, insurance companies were using a term called Activity of Daily Living. While there were some variations, usually there were five to seven ADLs. Seven were better than five or six, because it allowed a higher likelihood of receiving benefits. Seven ADLs included:
1) Eating, which means adequately reaching for, picking up and grasping a utensil or cup and getting the food or drink to the mouth. Some definitions also include the ability to clean one's face and hands afterwards.
2) Bathing, this means cleaning oneself using a tub, shower or sponge bath. This would include filling the sink or tub with water, managing faucets, getting in and out safely and raising one's arms to wash and dry their hair.
3) Continence, which means the ability to control bowel and bladder functions. This can also include the use of ostomy or catheter receptacles and the use of diapers or disposable barrier pads.
4) Dressing, this means putting on and taking off clothing which is appropriate for the current season. Some definitions include the use of special devices such as back or leg braces, corsets, elastic stockings or artificial limbs and splints.
5) Toileting, which means getting on and off a toilet or commode safely. If a commode or bedpan is used, it also means emptying it. Toileting includes the ability to properly clean oneself afterwards.
6) Transferring, which means moving from one sitting or lying position to another. This would include getting out of bed in the morning and sitting down in a chair or getting up out of a chair. Some definitions include repositioning to promote circulation and prevent skin breakdowns.
7) Ambulating, this means walking or moving around inside or outside of the home, regardless of the use of a cane, crutches or braces. This is the ADL that has been eliminated from the tax-qualified plans.
Eliminating ambulating is a serious benefit change. For many elderly people, ambulating is the first activity of daily living that is lost. The inability to move around means the person may not be able to fix meals, get to the bathroom, or even get up to answer a ringing telephone.
The six ADLs that are included in HIPAA include:
1) Eating, which means feeding oneself by getting food in the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously.
2) Bathing, this means washing oneself by sponge bath or in either a tub or shower, including the act of getting into or out of a tub or shower.
3) Continence, which means the ability to maintain control of bowel and bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for a catheter or colostomy bag).
4) Dressing, this means putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs.
5) Toileting, which means getting to and from the toilet, getting on or off the toilet, and performing associated personal hygiene.
6) Transferring, this means the ability to move into or out of a bed, a chair or wheelchair.
The definitions, you'll notice, are somewhat different although the meanings remain very close.
Most professionals feel that home care benefits have especially been limited by the difference in the ADLs since the loss of ambulation is almost always part of the need for care in the home. Even so, the qualified plans do also offer consumer protection requirements. As a result, there is a great deal of disagreement about which plan, qualified or non-qualified, should be sold.
Benefit Trigger
Difference
The greatest differences between the two types of policies are the benefit triggers.
Most people did not purchase their long-term care policy to receive a tax
deduction. They purchased their policy for health care protection.
Therefore, if the ability to use the policy is limited when health care is
needed, was it really worth having a tax benefit? Agents must be very
careful about explaining the benefit trigger difference when presenting
policies. Currently, both types are available in most states. Some
of the states have resisted the approval of tax-qualified plans because they
felt the benefit triggers were more restrictive than the state
requirements. Such was the case in
Decide whether the tax benefit of the premium deduction will benefit them personally;
Decide whether the loss of the ambulating ADL could affect them personally (especially if home care benefits are important to them); and
Fully understand the circumstances that will allow benefits to be paid under their policy. Most policyholders want to understand this and it is in the agent's best interest to be sure that they do.
Federal Criteria
The federally qualified (tax-qualified) plans do provide worthwhile benefits, even though ambulating is not an ADL. Federally qualified plans, which provide coverage for long-term care services (nursing facility, home care, and comprehensive), must base payment benefits on the following criteria:
1) All services must be prescribed under a plan of care by a licensed health practitioner independent of the insurance company. A licensed health care practitioner does not necessarily have to be a doctor. It can also be a registered professional nurse or a licensed social worker.
2) The insured must be chronically ill by virtue of either:
a. being unable to perform 2 out of the 6 ADLs, or
b. having a severe impairment in cognitive ability.
3) The licensed health care practitioner must certify that either:
a. the policyholder is unable to perform at least two of the six activities of daily living, without substantial assistance from another person, due to a loss of functional capacity for no less than 90 days or more, or
b. the insured requires substantial supervision to protect themselves from threats to their health or safety due to a severe cognitive impairment, such as Alzheimer's disease.
4) The licensed health care practitioner must re-certify that these requirements have been met every 12 months. The insurance company may not deduct the cost of the re-certification from the policy benefit maximums.
Although currently the insured must be either chronically ill by virtue of the ADLs or due to cognitive impairment, it is possible that the federal government could expand these requirements at some point. If that were to happen, each state would have to adopt the new triggers as well.
As an insurance agent, we know that definitions are extremely important in
policies. This is also true of the tax qualified plans. Because
certain phrases were used for specific meanings,
SUBSTANTIAL ASSISTANCE in the ADLs means hands on assistance and standby assistance.
HANDS-ON ASSISTANCE means the physical assistance of another person without which the individual would be unable to perform the activity of daily living (ADL).
STANDBY ASSISTANCE
means the presence of another person within arms reach of the individual that
is necessary to prevent, by physical intervention, injury to the individual
while the individual is performing the activity of daily living. The
SEVERE COGNITIVE IMPAIRMENT means a loss or deterioration in intellectual capacity that is comparable to Alzheimer's disease and similar forms of irreversible dementia and measured by clinical evidence and standardized tests that reliably measure such impairment. The impairment may be in either their short-term or long-term memory. It would include the ability to know people, places, or time. It would include their deductive or abstract reasoning, as well.
SUBSTANTIAL SUPERVISION is used in reference to cognitive impairment. It means continual supervision, including verbal cueing, by another person that is necessary to protect the severely cognitively impaired person from threats to their health or safety. Such impaired people are prone, for example, to wander away. Substantial supervision is needed to prevent this.
It is not possible to use the activities of daily living to measure severe cognitive impairment. Individuals with such impairment are often able to perform all of the ADLs without difficulty. Even so, they are unable to care for themselves due to their cognitive impairment. Therefore, the ADLs are not used when assessing this.
State laws may not be the same as the federal requirements. In fact, it would be surprising if they were the same. Non-qualified plans will meet the state's requirements while qualified plans will meet the federal requirements. Because states do differ, it is not always easy to state the differences between qualified and non-qualified long-term care policies. Generally speaking, however, it is usually safe to say that federally qualified plans are harder to receive benefits under than are the state's non-tax qualified plans.
As noted previously in the chart, one of the major differences has to do with medical necessity. Under non-qualified plans, simple medical necessity (as determined by the attending physician) was adequate as a policy benefit trigger. This is not true of tax-qualified plans. Even if the attending physician states medical necessity, the plan will not pay benefits, unless other specific criteria are first met.
When insurance companies first began using ADLs, agents found the basis simple to understand. A person who could not adequately perform a certain number of activities of daily living, as specified under the insurance contract, were eligible to receive policy benefits. Mathematically speaking, the more ADLs available the easier it was to obtain policy benefits. That is because it is mathematically easier to have 2 out of 7 ADLs required than it is 2 out of 5. Anytime an ADL is eliminated, obtaining benefits becomes harder. In addition to the mathematical equation, ambulation is often a major problem for elderly people. As a person ages, the ability to walk and perform other physical activities deteriorates. Ambulation is a major factor of aging.
Substantial
Assistance
Besides the question of ambulation, the definitions involved in the tax-qualified policies are generally stricter. An activity of daily living must require substantial assistance in a tax-qualified plan versus regular assistance in a non tax qualified one. In addition, tax qualified plans require a licensed health care practitioner to certify that the expected inability to perform the ADLs must last for at least 90 days or more. Anything less is not covered.
Under
Cognitive Impairment
Cognitive impairment, a common problem of aging, must be severe under a tax-qualified plan versus no description of severe under the non tax qualified plan. Simply the existence of a cognitive impairment is adequate under a non-tax qualified plan. Non-tax qualified plans also do not apply the substantial supervision test as does the tax qualified plans.
Since people with cognitive impairment can often perform all of the activities of daily living, receiving policy benefits can pose a problem. As a result, ADLs are often not used at all when assessing cognitive impairment.
Future Taxation - A
Possibility?
Considering all of this, one might wonder why anyone would ever purchase a tax qualified plan. In fact, there are reasons in favor of them just as there are reasons against purchasing them. For many consumers, the tax advantage is considered to be a positive element because they do file itemized tax returns and expect to continue to do so. However, the major reason often has to do with what the future might bring in taxation.
There is the possibility that future benefits received from insurance policies may become taxable, even though they are reimbursing medical costs. The Internal Revenue Service would like all health care benefits from insurance policies to become taxable as income. Of course, this would include long-term care policies. In fact, it has been suggested that long-term care benefits would be the first to become affected if this taxation change goes through. Thats not surprising since Americans have never previously had to consider reimbursed medical expenses as income.
Many professionals feel that
Because long-term care benefits might eventually become taxable, insurance companies are required to 1099 any benefits paid out under these policies. Beginning with the tax year 1997, every insurance carrier is required to report to the Internal Revenue Service on Form 1099 any benefit paid under any contract that was sold, marketed, or issued as a long term care insurance contract. The insurer is not required to determine whether the benefits are actually taxable or not.
When policyholders receive these
It is due to this very fact that many professionals are advising the tax qualified plans be sold. Tax qualified long term care benefits will not be taxable as income, even if other policies do happen to become so. They were specifically written to be a tax benefit in this future area. It must be stressed, however, that we really do not know at this time whether or not medical benefits will become taxable.
Integrated Long-term
Care Policies
Not all long-term care insurance policies are the same. Even when states enact long-term care insurance laws, there can be very important differences between policies.
One of the most recent forms of long term care policies (referred to as
Protecting Assets
Todays insurance buyer is usually concerned with protecting their financial assets from a long-term illness or disability. That is exactly the reason that sales for long-term care insurance have gone up so rapidly in the last ten years. Consumers are right to be concerned. More and more people are using nursing homes and other alternatives because we are now living much longer than before. Longer life does not always mean continued health to the end. Many aspects of aging require people to seek long term care of some sort. Even those who remain illness free eventually become fragile due to simple old age. We can reasonably expect to live to be 80 years old. For a person who retires at age 62 they must plan not only for their living expenses for nearly twenty years, but also how they will pay for the care required during that longevity.
Long-term care does not always mean receiving care in a nursing home. It can also include such things as care at home, in conjunction with community organizations, or a combination of services.
Asset protection is sometimes thought to be something that must be done with living trusts, gifting or other transfer measures. In fact, purchasing an adequate long-term care policy is very much a part of the measures that should be taken to protect acquired assets. The stigma attached to insurance purchase is not so strong when applied to the purchase of a nursing home policy because consumers are becoming more educated regarding the need for this type of protection.
Consumers believed at one time that the government would take care of them in their old age. Today, most people know this is not the case. Medicare is designed to pay for hospital and doctor bills - not the nursing home or other forms of extended care.
Medicaid, which is medical care for the poor of any age, does end up paying billions of dollars out to nursing homes, but this agency does so only after the patient has spent themselves into poverty first. Many people believe they can appear to be poor and thus receive Medicaid funds. They have put their money into revocable living trusts in an attempt to make this plan succeed. In fact, a revocable living trust gives absolutely no protection against poverty. There are some trusts that do truly transfer assets away from the patient, but these vehicles require that the patient give up their assets totally. And if it is not properly done, Medicaid funds will be denied.
As for military programs, while some individuals would qualify for long term care benefits from prior military service, there is an extreme shortage of beds. The military does not have any plans for expanding the available beds, so it is not wise to plan on such help. While it might be fair to say that veterans have the right to demand such care, if the care literally does not exist, it is a mute point.
Because of these and many other factors, more and more consumers are turning to insurance policies for their financial protection. Most policies are priced based on issue age. This means the age at which the policy is first purchased. Although premiums may still increase, the increase will always be based on the actual issue age. Therefore, the younger the person is when the policy is first purchased, the lower the premiums will remain.
Contract Issue Ages
Younger ages pay less for long-term care policies than do older ages. Its a fact of life. Companies issue policies in various ways, but all of them typically allow lower premiums for younger ages. This is not surprising since the longer the insurer has to collect premiums, the less they will have to offset when claims begin. Something called age banding is very common. Age banding typically separates age in 5-year increments:
|
Age: |
Price: |
|
65-69 |
$ |
|
70-74 |
$$ |
|
75-79 |
$$$ |
|
80-84 |
$$$$ |
Many companies do not even offer long-term care policies to those under the age of 40. While it is true that relatively few people are interested in purchasing these policies that young, it is probably not the reason that insurance companies do not offer it. Our society is experiencing a couple of diseases that strike young people and are very long term and very expensive. The most obvious of these is AIDS. As companies do offer policies to younger ages, we can expect to see a stricter code of eligibility. It is likely that many of the same underwriting techniques currently used for life insurance will come into play, primarily blood and urine tests.
Premium Rates
A premium is the amount of money charged for the insurance policy. A premium is a guaranteed loss in exchange for a potential gain. Like other insurance policies, long-term care policies may be paid in various ways: monthly, quarterly, semiannually and annually. Some policies may not allow monthly unless it is done through a bank draft and some may not allow monthly payments at all in any form.
The actual cost of a policy depends upon the benefits purchased. Just like buying a car, the more luxurious the model, the more expensive it will be. Long-term care insurance costs will depend upon the length of benefits, the size of the benefits, whether or not it is an integrated plan, the age at application, and elimination (deductible) periods. Whether or not the applicant is a smoker can also affect the premium rate. In addition, existing health conditions will play a role in the cost of the policy. Some companies offer a discount, usually 5% to 10%, if both husband and wife apply at the same time. A discount may also be offered if the applicant is considered to be extremely healthy.
30-Day Free Look
Most policies have a period of time during which the purchaser may change their mind and receive a full refund. This is also true of long-term care policies. This period of time is referred to as a free look because it is the period of time during which the purchaser may read the policy and decide if they like it well enough to buy it. The time period is 30 days from policy delivery (not from the purchase date). Therefore, if the policy is placed in the buyers hands on June first, the potential buyer has until June 30th to return it for a full refund. If the buyer decides against the purchase, the request for a refund should be made in writing. In fact, agents should insist upon this as a protection for themselves. Verbal requests cannot be proven. If the consumer changes their mind after requesting a refund and the agent cannot prove that termination was requested, it can cause some problems.
Once the consumer has viewed the policy, he or she will decide to keep it or return it. If they refuse the policy, it is voided. This means the policy was considered as never issued. No benefits are available once termination has been requested on a new policy, even if an illness or injury strikes. This is precisely why termination needs to be in writing.
For example:
John thought he wanted to buy a long-term care policy, so he purchased one. When it arrived, his son was visiting and asked to look at it. Since his son didnt understand some of the terms and requirements, he felt his father did not make a wise buy and told him to cancel it. John called the agent and requested over the telephone that it be terminated. Two weeks later, John suffered a severe stroke and his son realized that the policy was a good buy. He called the insurance company to request policy benefits be paid. When they told him the policy had been canceled he insisted they could not cancel it because nothing had been put in writing. He was right. There was no way it could be proven that John had intended to cancel the policy. Naturally, this makes the agent look foolish (although it also allowed the agent to collect commissions).
Most insurance companies require that termination be in writing. They know this will eliminate future problems.
Reviewing the
Application
Every consumer should look over the copy of the original application that comes with the policy with the intent of finding any errors. Errors can be unintentional or even intentional. Either the applicant or the agent may give false information. That is why the insurance company includes a copy of the original application with the policy.
Errors in the application can cause a refusal to pay claims during the first two years of the policy. It will not matter whether the applicant or the writing agent caused the error. Every policy advises the consumer to completely review their issued policy. Of course, as we all know, few people ever really read their policy. In fact, most agents have never read the very policies that they sell. They tend to rely on brochures and agency propaganda. Although the wording may vary, the contract will state that issuance was based upon the answers supplied on the original insurance application. Whether an incorrect answer was given unintentionally or not, the company has the legal right to deny benefits or even rescind the policy within the first two years following issuance. Even if the answer recorded was stated by the applicant, if it is in the agents handwriting, legal ramifications could occur. Many professionals have the applicant completely fill out the medical questions themselves in their own handwriting for this reason.
Policy Schedule
Long-term care policies contain a policy schedule at the front of the policy. It will list several things including:
the insureds name
the premium amount
the mode of payment (monthly, quarterly, semiannually, or annually)
the elimination or deductible period chosen
the maximum daily home and adult day health care benefit, if any
the maximum daily nursing home benefit, and
the maximum lifetime benefit available under the policy.
inflation benefits which increase the benefits payable each year
Integrated policies will state that there is a maximum amount of money that is available. This page will also generally state the actual policy effective date and the policy number.
Elimination or
Deductible Periods
Although there are options that totally eliminate any contract deductible, such deductibles are offered as a way of lowering the premium cost. Most professionals recommend to their clients that a deductible be considered as a means of keeping these policies affordable. Deductible periods are usually referred to as elimination or waiting periods. Elimination or waiting periods are deductibles expressed as time not covered. In other words, Lauras policy has an elimination period of 90 days. This means that her policy will not begin to pay any benefits until the 91st day of a nursing home confinement has occurred. Her policy will never pay for those first 90 days, because that was her elimination period under her policy. It will only begin to cover costs from the 91st day on. For many people this makes sense if they can afford to pay initially. They consider their policy to be a catastrophic coverage, covering only when costs are more than they can handle. The first 90 days of nursing home care can easily cost $10,000 so such deductibles should not be taken lightly.
Of course eligibility must always be established before any benefits will be paid. Some policies, unless prohibited by state statutes, might require that three days of hospitalization occur before they will cover a nursing home stay. Therefore, if Lauras hospital stay were less than that, her long-term care policy would not cover anything even after the elimination period of 90 days.
Many agents do not offer their clients more than a 30-day elimination period even though their companies may have them available. They feel anything more than that could be a hardship. However, it really should be a decision that is made by the consumer.
Bed Reservation
This can be a confusing benefit. It has nothing to do with finding a suitable nursing home for clients, as one might think. Rather, this benefit means the insurance policy will continue to pay the long term care facility benefit to the nursing home while the policyholder is temporarily hospitalized during the course of their nursing home stay. This provides the security of returning to the same familiar surroundings after being hospitalized.
The nursing home policy will not continue, however, to pay this benefit for any great length of time. This must be a temporary situation, not a lengthy one. Commonly, the bed reservation benefit is limited to 21 days per calendar year. Seldom may unused days from one year be carried into the next.
Waiver of Premium
This benefit is well received by consumers. Since most policies include a waiver of premium benefit, agents usually make a point of using it as a selling tool. A waiver of premium benefit involves renewal premiums that occur after the policyholder has been admitted to a nursing home or is otherwise receiving benefits from their policy. They must meet policy requirements, but once that is done, the institutionalized policyholder (or one that is receiving benefits under the policy in some capacity) no longer must pay renewal premiums. These premiums are waived under this policy section. Therefore the name: waiver of premium.
How the qualification of this is determined will vary among policies, so it is necessary to fully understand the requirements. For example, some policies count the elimination period when satisfying the benefit period (usually 90 days) while others do not. A policy that does not count the elimination period would look like this: Elimination period + Benefit days = Waiver satisfaction. For Laura, with her 90-day elimination period, she would have to wait:
90 deductible days + 90 waiver of premium days = 180 days.
This means that, assuming her policy uses 90 days for their waiver of premium benefit, Laura would continue to pay premiums until the first premium due after 180 days of receiving benefits. It would take 6 months to have her premiums waived.
If Laura has paid an annual premium on her policy, she probably will not get a refund. Most policies state that the next premium due will be waived. Therefore, if she has paid a year in advance, the premium will be waived when it comes up for payment at the premium years end.
Long-Term Care
Education Requirements
More and more states are passing specific legislation for long-term care products and those who sell them. Many states now mandate specific education before an agent can market or sell long-term care products. This would include not only policies for the nursing home, but also home health care products and similar contracts. Agents should check with their insurance department to see if their state has such requirements.
End of Chapter 9