Policy Options

 

 

What Is a Long-Term Care Policy?

Since long-term care benefits cover multiple types of care, a long-term care policy might cover home care, community-based services, adult day care (both medical and non-medical), assisted living, or a nursing home. As time goes by, other forms of care may be developed that is not currently named as a covered service. With these various services in mind, a long-term care policy is a contract that provides benefits for an extended period of time in some location other than a hospital. The exact benefits will vary, but each contract will have a policy schedule that states precisely what is covered. It will include the elimination period, the maximum daily benefit for home and adult day care, the maximum nursing home benefit and the maximum lifetime benefit. Even life insurance policies may have a nursing home benefit provision.

 

Like other types of contracts, long-term care contracts contain specific items. There will be a copy of the original application, policy provisions, and attachments, if any. The policy contract is a legally binding contract between the applicant and the insurance company. No one, including the agent, can change any part of the policy or waive any of its provisions unless the change is approved in writing on the policy or on an attached endorsement by one of the company officers.

 

 

Policy Issue

Issuance or rejection of the policy will be based on the original application. Underwriting will be based on the answers provided to medical questions on the application and on the responses received from attending medical professionals. Intentionally incorrect or omitted information on the part of the applicant or agent can cause the policy to be rescinded or cause benefits to be denied. If the policy has been in force for less than six months an otherwise valid claim has the possibility of denial if information was knowingly omitted or given incorrectly.

 

Once the policy has been in force for two full years, only fraudulent misstatements in the application may be used to void the policy or deny a claim. All contracts must conform to the laws of the state of issue. They must also conform to federal law, especially if the contract is a tax-qualified form. If any provision conflicts with the laws of the issuing state, the provision is automatically changed so that it will comply with the minimum requirements of that state.

 

Individuals of any age can require long-term care. While the elderly are most likely to utilize such care, those involved in accidents and with some types of illness, such as AIDS, may also find themselves in a nursing home facility or in community-based care. However, long-term care policies are typically designed with the elderly in mind. Coverage is designed to cover some aspect of long-term care, most often the nursing home. Such policies do not include coverage for the hospital or hospital related services. Nor do they cover the costs of care generally connected with benefits provided under Medicare and Medigap policies.

 

 

Medicare Benefits

In some ways, it is easiest to state what is not long-term care coverage. Unfortunately, for many years senior citizens thought they had coverage for a nursing home stay when, in fact, they did not. This false sense of security was most often applied to Medicare supplemental insurances usually referred to as Medigap policies (so named because they plug the gaps left by Medicare). Medicare and the related policies do a good job on hospital and doctor bills, but neither covers the cost of a long-term nursing home stay. Let's take a look at the benefits provided by Medicare and Medigap policies:

 

There are basic benefits included in all ten federally standardized Medicare supplemental plans. Under the basic benefits the recipient receives hospitalization under Part A, which means that Medicare will pay the hospital costs in the following manner:

 

Part A (Inpatient care):

         Semiprivate room and board (meals).

         General nursing and miscellaneous services and supplies.

         Inpatient mental health care in a psychiatric facility is limited to 190 days in a lifetime.

         The first 60 days of confinement EXCEPT for the deductible. The deductible amount can change each January first.

         From the 61st day through the 90th day EXCEPT for the co-payment which must be covered by either the patient or their insurance company. Again, the amount of the co-payment can change each year, beginning on January first.

         From the 91st day and after:

1.      While using 60 lifetime reserve days. There is a co-payment that would not be covered by Medicare. The patient or their Medigap policy would cover this co-payment.

2.      Once lifetime reserve days are used, an additional 365 days will be covered by the Medigap insurance policy, if there is one in place.

3.      Beyond the additional 365 days, there are no more hospital benefits under Medicare.

 

Part A will also cover skilled nursing facility care under very specific circumstances. When it is covered, a semiprivate room, meals, skilled nursing and rehabilitative services and other supplies associated with it will be covered. There is a three day related inpatient hospital stay required to qualify for skilled nursing facility care.

 

Home health care may be covered under Part A of Medicare, again if all qualifications are first met. Home health care is provided on a part-time (never full-time) basis. It would include intermittent skilled nursing care and home health aide services, physical therapy, occupational therapy, speech-language therapy, medical social services, durable medical equipment, such as wheelchairs and hospital beds, medical supplies and other related services.

 

Hospice care for those with a terminal illness is also covered under Part A of Medicare. It would include coverage for drugs for symptom control and pain relief, medical and support services from a Medicare-approved hospice and other services not otherwise covered by Medicare. Hospice care is typically provided in the patients home, although Medicare covers some short-term hospital and inpatient respite care under specific circumstances.

 

It should be noted that even if a person continues to work past Medicares qualifying age of 65, the individual could still apply for and receive Medicare benefits. In many cases, if the employer supplies medical coverage, Medicare will become the secondary payer.

 

Part B (Outpatient Care):

Part B of Medicare, called Medical Insurance, helps cover doctors fees and services and outpatient hospital care. This includes doctor visits other than routine physical exams, outpatient medical and surgical services and supplies, diagnostic tests, ambulatory surgery center facility fees for approved procedures, and durable medical equipment such as wheelchairs and hospital beds. Second surgical opinions are also covered. Clinical laboratory services such as blood tests, urinalysis, some screening tests, and blood are covered. It also covers some other medical services that Part A does not cover, such as physical and occupational therapists, and some home health care. In order for these services to be covered, they must be considered medically necessary under Medicares guidelines.

 

Each Medicare recipient should receive a copy of the current Medicare handbook from the federal government to learn precisely the benefits that will be received. Any person can request and receive this booklet by calling 1-800-633-4227.

 

There is a cost for Part B of Medicare, which is taken out of the individuals Social Security check each month (an automatic withdrawal). The cost of Part B changes each year. In some cases, the amount charged may be higher than normal if the recipient did not sign up for Part B when he or she first became eligible for the benefits. The cost goes up 10% for each 12-month period that the person was eligible, but did not enroll. The extra cost continues for as long as the recipient continues to have Part B.

 

New premium rates become effective every January first of each year. While it is not required that costs go up, they inevitably do each year. Current premium rates may be found by going online at www.medicare.gov or by calling 1-800-MEDICARE.

 

While Part A of Medicare is automatic and free, assuming adequate payment has been made through payroll taxes, individuals must sign up for Part B. If an individual is already receiving Social Security benefits, or Railroad Retirement benefits, he or she is automatically enrolled in Part B starting the first day of the month in which age 65 is attained. For those who are under age 65 and disabled, enrollment is automatic after 24 months of being on Social Security disability. An individual has to be disabled for five full calendar months in a row to qualify for Social Security benefits. A Medicare card will be mailed about three months prior to the persons 65th birthday or prior to the 25th month of disability benefits. Those who do not want to pay for and receive Part B Medicare benefits must specifically reject them by following the instructions that come with the Medicare card. Otherwise, enrollment will be automatic.

 

Under Either Part A or Part B:

Either Part A or Part B of Medicare may cover the first three pints of blood each year.

 

Beyond these basic benefits, some plans offer additional coverage. Plans A through J have been mandated by federal legislation. All companies marketing Medigap policies must offer exactly the same benefits. In other words, all companies offering Plan C will have identical benefits, except for price, which may legally vary.

 

Plan A has only the basic benefits, with no additional coverage offered beyond that. It is rare for consumers to buy plan A. If any other plan is offered, however, the insurance company must also offer Plan A.

 

There are ten federally standardized Medigap insurance plans. They are lettered A through J:

 

A

B

C

D

E

F

G

H

I

J

Basic

Benefits

Basic

Benefits

Basic

Benefits

Basic

Benefits

Basic

Benefits

Basic

Benefits

Basic

Benefits

Basic

Benefits

Basic

Benefits

Basic

Benefits

 

 

Skilled Nursing Coinsurance

Skilled Nursing Coinsurance

Skilled Nursing Coinsurance

Skilled Nursing Coinsurance

Skilled Nursing Coinsurance

Skilled Nursing Coinsurance

Skilled Nursing Coinsurance

Skilled Nursing Coinsurance

 

Part A

Deductible

Part A

Deductible

Part A

Deductible

Part A

Deductible

Part A

Deductible

Part A

Deductible

Part A

Deductible

Part A

Deductible

Part A

Deductible

 

 

Part B

Deductible

 

 

Part B

Deductible

 

 

 

Part B

Deductible

 

 

 

 

 

Part B Excess (100%)

Part B Excess (80%)

 

Part B Excess (100%)

Part B Excess (100%)

 

 

Foreign Travel Emergency

Foreign Travel Emergency

Foreign Travel Emergency

Foreign Travel Emergency

Foreign Travel Emergency

Foreign Travel Emergency

Foreign Travel Emergency

Foreign Travel Emergency

 

 

 

At-Home Recovery

 

 

At-Home Recovery

 

At-Home Recovery

At-Home Recovery

 

 

 

 

 

 

 

Basic Drugs

($1,250 limit)

Basic Drugs

($1,250 limit)

Extended Drugs ($3,000 limit)

 

 

 

 

Preventative care

 

 

 

 

Preventative care

 

Medicare only covers skilled nursing care, with the supplemental insurance picking up the coinsurance amount. Unfortunately, many consumers thought skilled nursing care was long-term care coverage. It is not. In fact, the amount of coverage allowed is quite small. In order to receive any nursing home benefits under Medicare, the recipient must meet Medicare's requirements. This includes 3 days of hospital confinement for a related illness or injury. From the hospital, the patient must enter a Medicare-approved facility within 30 days after leaving the hospital.

 

The Medicare beneficiary, upon entering the nursing home, will receive benefits for only skilled care. Coverage is not available for either intermediate or custodial care by Medicare or their Medicare supplemental insurance policy. Custodial care is the type most commonly received. When the level of care received is skilled (not intermediate or custodial) Medicare will pay for the first 20 days entirely. Neither the patient nor their supplemental policy will have to cover anything, as long as the charges are approved. Approval is the key point. Anything not approved by Medicare will not be covered.

 

From the 21st day through the 100th day, Medicare will pay all charges except for a daily co-payment which either the patient or their Medigap policy must pay. After the 100th day, there are no benefits under Medicare or a Medigap policy. From that point on, even if the care being received is skilled care, there are no benefits due.

 

Obviously 100 days of coverage is not sufficient and cannot be considered long-term. The consumer cannot and should not rely on Medicare or their supplemental Medigap policy for long-term medical needs in a nursing home facility.

 

Some Medicare recipients do receive skilled care benefits. To qualify for the nursing home care that is available under Medicare, the patient must meet certain qualifications, including:

 

1.        The doctor must certify that the care is necessary.

2.        Skilled care must be received, not intermediate or custodial care.

3.        The facility must be Medicare approved or certified.

4.        The facilitys Utilization Review Committee cannot have disapproved the stay.

5.        Finally, the care must be rehabilitative in nature.

 

Consumer's Report magazine stated that Medicare could be relied upon to pay very little for long-term nursing home care. Only two percent of those who required nursing home benefits received them through Medicare.

 

Not all quote the same statistics. According to the United States Department of Health and Human Services the average length of time in a nursing home is 456 days. Other sources will quote from 2.5 years to 3 years. The figure quoted will depend upon how the figures were gathered and organized. Many people require only three months or less in a nursing home, due to surgeries that require some rehabilitative treatment, such as physical therapy. When these short stays are averaged in, as they were by the Health and Human Services, average lengths of stays will appear shorter.

 

 

Medicare Supplemental Policies

Supplemental policies do not pay for long-term care services. Although there are different choices among states, none of them are designed with long-term care needs in mind. In March of 2003 President George Bush proposed to Congress his Framework to Modernize and Improve Medicare. The Framework proposes to build on the strengths of the current Medicare program while bringing in features of more modern insurance plans.

 

The traditional fee-for-service plans still exist, but now there are other plans available as well.

 

 

Original Medicare Plan:

The Original Medicare Plan covers most health care services and supplies, but it doesnt cover everything. Most people choose to get some type of additional coverage (supplemental insurance). This is a fee-for-service plan, which means the individual is charged a fee for each service. This plan is managed by the Federal Government and is available nationwide. Those enrolled in this plan use a red, white, and blue Medicare card when they receive health care so that the provider may bill Medicare from the information contained on the card. There is a monthly fee for Medicare Part B (which is subtracted from the individuals monthly Social Security income) plus a premium for the supplemental insurance coverage if one has been purchased from an insurer.

 

The Original Medicare plan does not cover long-term nursing home care. It will pay for skilled nursing care under specific circumstances for up to 100 days. The individual pays for a co-pay amount from the 21st through the 100th day. The first 20 days are fully covered by Medicare as long as the patient qualifies for such care (only skilled care is covered).

 

The Original Medicare plan will pay for both home care and hospice care under specific circumstances. The individual will pay nothing for home care services if they qualify to receive them. Medicare fully covers the cost. The beneficiary will have to pay for 20 percent of the Medicare-approved amounts for durable medical equipment.

 

Hospice care is care for the terminally ill. The individual must pay a copayment for hospice care for outpatient prescription drugs and a percentage of the Medicare-approved amount for inpatient respite care (short-term care given to a hospice patient so the usual caregiver can rest).

 

The amount one pays for respite care can change each year. Medicare doesnt typically pay for room and board except in certain cases.

 

 

Medicare + Choice Plan

The Medicare + Choice Plan requires that parts A and B of Medicare be in place. Private companies contract with the Medicare program to offer Medicare + Choice Plans to those who feel this type of coverage benefits them. Belonging to this program does not mean that they have opted out of Medicare; they are still in Medicare.

 

Congress created Medicare + Choice Plans to provide the recipient with additional choices and perhaps even extra benefits than they would receive under the Original Medicare Plan. Under Medicare + Choice Plans the beneficiary usually has to go to specific doctors, specialists and hospitals. They are given a list of those that they may choose from. A primary doctor is chosen who then provides referrals when other specialists are needed.

 

Under this option, the beneficiary may choose from Medicare managed care plans, Medicare private fee-for-service plans, Medicare preferred provider organization plans (called PPOs), or Medicare specialty plans. The individual is still in the Medicare program under all of these choices. That means the individual still has Medicare rights and protections. The regular Medicare services are still available but some plans may provide additional benefits. However, in all cases, there is no coverage beyond that supplied by Medicare for long-term care services.

 

Decisions on which type of plan to join are usually made on the basis of cost and benefits. The ability to choose doctors independently may also be a factor.

 

 

Protecting Assets

Obviously, no one really wants to go to a nursing home. That is one reason for the popularity of alternative care options, such as assisted living. At one time, AARP reported that the majority of elder Americans believed the government would take care of them through Medicare. Today, most people realize that is not the case. In the past ten years, the sale of long-term care policies have skyrocketed as people sought ways to protect their assets from medical costs.

 

Protecting ones assets is a valid concern. Many elderly people do eventually qualify for Medicaid, but only after they have depleted most of their personal resources. Medicaid is the joint federal-state program that pays for health care costs for needy low-income residents of all ages (not just the elderly). Benefits are typically available for those on Welfare, to certain disabled citizens, and to persons over the age of 65 who meet the economic means test. To meet this economic means test, the person must be impoverished. Some items are exempt while still allowing qualification. One asset that would be exempt is the person's personal home, in which they have been residing. Also exempt are some personal items, one vehicle for transportation, and in a few cases, specific types of annuities. Income producing property may be exempt as long as the income goes towards the person's care. Since each state controls some aspects of Medicaid qualification, it is very important to understand your own states guidelines. While each state pays approximately half of the cost (with the federal government paying the other half) the exact amount paid by the state varies depending on multiple factors. Each state also is allowed to administer many elements according to their own desires, as long as it does not clash with federal guidelines. As a result, what worked for Uncle Joe in Kansas may not work for Aunt Mabel in Wyoming.

 

There is one aspect of Medicaid that is uniform to all states: the fact that qualification depends upon spending-down assets. People who prided themselves on always paying their own way may find themselves in the position of having to ask for financial help.

 

 

Medicaid Benefits

Even though the states have general control of their Medicaid funds, they must also follow federal laws. Federal law requires states to provide a minimum level of services to Medicaid beneficiaries. Those services include such things as inpatient and outpatient hospital care, laboratory and X-ray services, skilled nursing home care and home health services for those aged 21 and older, examination and treatment for children under the age of 21, family planning and rural health clinics. About half of Medicaid spending goes for federally mandated services. States pay health care providers directly for patient services and almost invariably require doctors to accept the state fees as full payment. Doctors and other medical suppliers are legally required to accept the amount paid by Medicaid, which means they cannot bill their patients for any additional amount. Therefore, some medical providers may not accept Medicaid patients.

 

Medicaid funding, as well as Medicare funding, has become a real concern. As the baby boom generation reaches retirement, adequate funding may not be available under current funding procedures. About 45 cents out of every dollar goes to pay for nursing home care to only about 8 percent of the beneficiaries. That means that approximately 8 people out of every 100 Medicaid enrollees use nearly half of the Medicaid funds. Funds under Aid for Dependent Children and their parents make up about 70 percent of Medicaid's caseload, but they only receive about 30 percent of the total funding. Many argue that the largest amount of money should be spent on the younger Americans rather than the older, less productive retired group. While we might like to do that, where would that leave the older generation? They must be cared for. This has brought about much debate but it has also brought about alternative development, such as assisted living facilities and community-based care programs that prevent institutionalization (which is the most expensive type of care). It is likely that the future will bring even newer developments as we try to sort out the financial aspects of a graying nation.

 

All aspects of government have faced budget problems. Medicare and Medicaid perhaps face the greatest challenge since they must deal with the increasing elderly population. Rising medical costs also play a role. It is common to spend the most money on the last three months of our lives. Many of the medical procedures do nothing more than delay death. However, medical professionals are reluctant to do less that everything possible since lawsuits have become pervasive in the United States.

 

Nearly every state has faced severe budget deficits in their Medicaid funding. Some states have actually put a ban on building additional nursing homes in an attempt to curb the rising costs. The federal and state governments have attempted to control the rising costs in some way.

 

Fraud and abuse in the medical field has played a major role in the rising cost associated with Medicaid and Medicare. While Medicare has a single administrator (the federal government), Medicaid has 50 separate administrators, because each state is in charge of their own program. This makes it difficult to curb fraud and abuse of the Medicaid system. There is no doubt that part of the funds end up in the pockets of dishonest medical providers.

 

Many elderly consumers believe the military will, in some way, provide for their nursing home needs. Due to a shortage of beds, even when the veteran might qualify, the chances of actually getting such coverage is small. It only takes a call to the military agency for them to confirm this.

 

 

Relying on Insurance for LTC Payment

In the past ten years, insurance policies for long-term care needs have become popular. Not all insurance policies are adequate for long-term nursing home care, however. The consumer must choose wisely. Since many states are now mandating certain requirements, if the consumer (and selling agent) selects a policy labeled Nursing Home Policy it will probably do an adequate job. Most states have mandated specific names for specific policies in an effort to make consumer selection easier. A policy might be labeled Home Care Only Policy, Comprehensive LTC Policy, or Nursing Home Facility Only policy. Each state will have their own titles, but whatever your state uses, it is important that you understand the benefits each one contains.

 

Federal legislation, under HIPAA, has established policies that are "tax-qualified." These tend to be uniform from state to state. Therefore, consumers must choose between non-qualified and qualified forms. When we speak of qualified and non-qualified we are always referring to the tax implications. The tax-qualified plans meet certain tax qualifications; the non-tax qualified contracts do not. However, few people choose a long-term care plan based on a potential tax deduction. Luckily, the main focus is typically on the benefits provided. In many cases, non-tax qualified plans offer better home care benefits and better benefit qualification.

 

Peace of Mind

Peace of mind is a term that has nearly been worn out by insurance agents and companies trying to sell their products, yet it remains a valid factor. When it comes to the potential future costs of nursing home care, it is especially valid. While a policy will not erase the worry of entering a nursing home, it may ease the stress associated with the financial costs.

 

State Requirements

The contracts offered will vary with the state, since each state will require certain features. Each policy must follow the guidelines of the state where issued. There will still be similarities from state to state, but the actual benefit features will depend upon state requirements. Each policy will have benefits, exclusions and limitations that are fairly standard. All will be within the limits of the state's regulations. Many states use the NAIC guidelines.

 

Most states will have adopted tax-qualified policies, so there will be two types available: tax qualified and non-tax qualified. In a few states, there will also be partnership policies available. Partnership policies are a special kind designed to allow enrollees to avoid impoverishment due to a nursing home confinement. They require special agent education to market them. They may not be marketed unless this education is completed.

 

Age As A Policy Factor

The age of the applicant will have an impact on the cost of the LTC policy, the older the applicant the more expensive the policy. Age matters because the less time the insurance company has to collect premiums, the greater the company's risk exposure is. Therefore, the price for the policy is higher. There are two ways to price policy applications: by attained age and by age banding. Attained age relates to the age of the person at the time of application. Age banding also looks at the age at application, but rates are based on several ages banded together. When each birthday determines the rate, the policy rate book will show it as such:

 

Age:

Price:

65

$

66

$

67

$

68

$

69

$

 

This will continue until a point is reached where issue ages discontinue. Most companies will not issue a long-term care policy past a specified application age, usually around 80 years old. Of course, by this age, the policy cost is very high.

 

Contracts that use age banding usually go in groupings of 5:

 

Age:

Price:

65-69

$

70-74

$

75-79

$

80-84

$

 

Age banded contracts quote the same price for each age within the banding. For example, an applicant aged 69 would pay the same premium amount as an applicant aged 65 would. The 65 year old may get a better buy if he or she purchased from a company that priced by attained age whereas the 69 year old may find banding more advantageous.

 

Not all companies will issue a policy past the age of 79. This example showed an age banding of 80-84, but individuals will want to check with the company they are considering to see if they can obtain a policy if they are in that age bracket.

 

 

The Underage Market

When long-term care policies first came on the market no one expected any interest from consumers who were not yet receiving Medicare benefits (age 65 and older). Initially, they were probably correct in their assumption. Today, however, many individuals in the forties and fifties are expressing interest. Surprisingly most companies do not sell, or even offer to sell, to the younger ages. Many policies are not available to anyone under the age of 40 or even 50. That is beginning to change. Since prices are always lower for the younger ages, buying early is attractive to those consumers who understand the need. This younger age interest is primarily coming from those between the ages of 50 and 60.

 

Why are younger ages looking at long-term care insurance? It may involve many factors, but primarily it has to do with fewer family members available to rely upon. Younger individuals are wondering how they would cope with an automobile accident that left them dependent upon another or an illness that was prolonged, such as AIDS. In addition to understanding the pitfalls of growing older, the younger population is aware of how an accident or illness could affect them and their family members.

 

The possibilities have not been overlooked by the insurance industry. They are well aware of the possible financial effects that AIDS and other devastating diseases could bring to the long-term care costs in this country. Many experts feel that the insurers are hesitant to offer long-term care policies to younger ages for this reason. Insurers have good reason to worry. AIDS, as an example, is a disease that could cause younger people to overtake the elderly in the need for long-term care if it were to ever become wide spread in America. It is thought that underwriting may begin to use similar testing for long-term care that is currently used for life insurance products - a blood test. This may apply only to the under age 40 group or it may be applied uniformly to avoid discrimination claims. However such tests end up being applied, most underwriters are expecting to initiate such medical procedures as part of the application process in the coming years.

 

 

Increasing Premiums

When long-term care policies first came into the market place, premiums were seldom thought to be stable. Since underwriters had few actual facts to work with, underwriting ability could not be considered necessarily sound. Insurers had to watch to see how they performed actuarially. Eventually, underwriters had the statistics they needed to feel confident about the rates that were set. Agents became confident that premiums would remain stable and announced this to their policyholders. After all, no matter what actual costs might be, the insurers risk was limited to the amounts specified in the policy. A $100 per day benefit would still be $100 even if actual costs rose to $300 per day. Agents failed to consider the rising number of policyholders that were submitting claims for payment.

 

Today, agents cannot tell their clients that rates will remain stable. Company after company introduced gigantic rate increases beginning primarily in 2003 and 2004. Not all states have been hard hit, but the majority has definitely seen increases beyond what was previously considered normal. Some policy forms actually doubled in cost in a single rate increase. Agents have always known that premiums could increase. Agents who were suddenly faced with explaining these huge rate increases wondered how this could happen. Since the companies did not have to pay beyond the daily rates, how could they justify the need for these unbelievable rate increases? Several factors caused the large increases. Perhaps, most significantly was their lack of foresight in the failure of the stock market and the continually lowering interest rates, which affected their own investing. In addition, Americans are living longer than predicted early on. That means that the companies are paying out benefits to more people than expected and for a longer period of time.

 

Consumers arent generally interested in hearing the reasons why their rates jumped so high. There is no denying how unfair this is to consumers. Their income is not likely to grow. In fact, the low interest rates often mean they have less money than they expected to have in retirement. For those who have paid for five, ten, maybe even fifteen years on a policy, such rate increases may mean they must give up the policy at the very point it is likely to be needed.

 

Consider this example:

Carol purchased her policy just before she retired at age 62. The premium was low, due to her early application age. She knew she wasnt likely to use the LTC policy for many years, but felt she was being responsible for her future by considering the need before she was sick and while premiums were still affordable. Over the next fifteen years she saw several rate increases, but none of them were dramatic. Then, in 2004, she received notice that her policy rate was doubling. There was no possible way for her to absorb this dramatic rise in cost. At age 77 (her current age in the year 2004), she was likely to need the benefits in her policy in the near future. She had paid her premiums for fifteen years in anticipation of that need. Yet, now at age 77, she was forced to drop her policy because she was not able to pay the current premium cost. Is there any doubt that Carol will feel betrayed by her long-term care insurance company? She also feels betrayed by her state insurance department, who approved the rate increase. It doesnt matter that the state is keeping the insurer solvent. Since she cannot afford to keep her policy, she feels she has given the insurer fifteen years of premium that she could have set aside in a savings account instead. At least then she would have had some money to pay for her long-term care. As it is, she has nothing.

 

The individual states are going to have to accept some blame for this situation, whether such blame is deserved or not. Consumers will be turning to them for a solution.

 

 

Insurance Pricing

Consumers determine the cost of their long-term care policy by their selection of benefits at the time of application. We have already mentioned another pricing factor: application age. The benefit options chosen will also affect how much the policy costs. Obviously, if greater benefits are selected, the cost of the policy will reflect that. Policy options will be discussed further in another chapter, but basically the consumer can choose from a wide variety, including an inflation rider option, the daily benefit amount, home health care benefits and the deductible (called a waiting period or elimination period). Some companies may offer additional options. Premium can also be affected by whether or not the applicant smokes and whether or not both spouses are applying. Some companies offer discounts if both spouses take out a policy. Some companies may also offer a discount in premium for those that are considered extremely healthy physically and in their lifestyle.

 

 

 

Premium Mode

Premium mode payment is similar to other types of policies in that they may be paid yearly, semi-yearly, quarterly, or monthly. When the consumer desires monthly payments, they might be required by the issuing company to use a monthly bank draft rather than direct billings. A few companies will allow the applicant to pay personally each month, but most companies require monthly payments to be through a bank draft. This makes good sense, since a person could easily overlook the payment of their premium if they were sick. As a result, someone who mailed in a check each month could allow their policy to lapse just when they needed it most. A few insurers allow only annually, semi-annually, or quarterly payment modes. Some states have special payment requirements. California, for example, does not allow the agent to collect more than one month's payment at the point of application. The consumer can pay a larger premium mode later directly through the company.

 

 

Reducing Benefits to Save Premium

When premium rates jump unexpectedly, not all consumers will be able to absorb the additional cost. Some individuals will allow their policies to lapse. Others will strive to find a solution. Some states have provisions allowing the policyholder to reduce their benefits, which reduces their premium. This is an attempt by the states to keep long-term care policies in force even when the consumer has to cut back on costs. It is better for both the consumer and the state to have some benefits in place rather than no benefits at all.

 

There are several ways that benefits may be reduced:

 

1.        Reduce the length of benefit payments (from lifetime to 4 years, for example).

2.        Reduce the daily benefit amount.

3.        Discontinue some benefits, such as home health care options.

4.        Convert from one policy form to another, if the state has provisions that allow this.

 

The premium reductions are typically based on the policyholder's age at the time of original application. This may not be true where benefits are added rather than reduced. Where there are no state provisions allowing benefit reduction in order to reduce premium, companies may require a totally new application, which means that the reduction of benefits may not save any premium if the applicant is older now than when he or she originally applied for coverage.

 

Example:

Bert is now 70 years old. He purchased his long-term care policy when he was 68 years old. Even though only two years have passed, the difference in age can make a great deal of difference when it comes to premium rates. Bert feels the current premium of $1,600 is more than he can continue to pay. As he explains: "Every year I have to take this amount out of my savings. That's more than I earn during the entire year in interest. Either I have to lower my cost or drop the policy."

 

 

If there is not a state requirement requiring Berts issuing company to allow benefit reduction in order to save premium then a new application must accomplish this. A new application will be based on Berts current age of 70. Even though he is only two years older, the extra premium caused by this additional age saves little, if any, premium even with fewer benefits. As a result, Bert still cannot afford a long-term care policy. Bert may eventually have to rely on Medicaid to pick up any long-term care expenses. Because this is often the case, it is in the state's best interest to mandate that a consumer can lower benefits on an existing policy. Such a requirement is likely to save the state Medicaid dollars.

 

Although there will be policy variations, even within the same company, there will also be similarities. Of course, every policy must conform to state requirements.

 

 

Policy Renewal

It is not likely that a long-term care policy would be written with premiums guaranteed to remain the same. Most long-term care policies are now guaranteed renewable, meaning the premiums are subject to change. In a guaranteed renewable policy the insured's contract will remain in effect during their lifetime, as long as premiums are paid in a timely manner. The policy benefits cannot be changed without the policyholder's consent.

 

 

Policy Review: 30-Day Free Look

While most people now realize the need to protect themselves from the costs of long-term care expenses, not everyone agrees that an insurance policy is the best avenue for doing so. Therefore, many people desire a time to review the actual policy and think it over. Companies issuing long-term care policies allow a 30-day period to do just that. It is commonly called the "free look" period. Within that 30-day period of time, they may change their mind and return the policy to either their agent or the issuing company. All of their premium must be returned to them. The consumer need not say why they have changed their mind. The refund must be issued within 30 days of the consumers notification to cancel the policy.

 

When a policy is returned during the applicants "free look" period, the policy is null and voided. This means the policy is considered as never having been issued. It also means the insurance company is not liable for any claims.

 

 

Number One Best Selling Unread Document

Insurance policies have been called the number one best selling unread document. Every insurance contract advises the consumer to completely review their issued policy, but few probably do so. Although the wording may vary, the contract will state that issuance was based upon the answers given by the applicant to the questions in the original application. A copy of the original application will be included in the issued policy. If the answers given by the applicant were incorrect or untrue, the company has the right to deny benefits or rescind the policy within the first two years after it was issued. Policyholders should take the time to review their newly issued policy. If they discover the writing agent incorrectly listed any item, the insured should immediately contact the insurance company and get the item corrected.

 

 

No Policy Covers Everything

Each issued long-term care policy is designed to cover specific costs related to aging. Under the heading of "Notice To Buyer" the insurance company will list the benefits that are provided by the policy. This statement may be specifically mandated by the state where issued or it may be a general statement made by the insurance company. This notice advises the insured to carefully review the policy's limitations. This should be done within the first 30 days so that the policyholder can return their policy for a refund if they are dissatisfied with those limitations.

 

 

Policy Schedule

The policy schedule will list the insured's name and the options that were purchased by the insured at the time of application. Some of the possible items listed include the:

 

1.        Elimination period (deductible expressed as days not covered);

2.        Maximum daily home and adult day health care benefit;

3.        Maximum daily nursing home facility benefit;

4.        Maximum lifetime benefit, and the

5.        Type of inflation benefit, if any.

 

There may be other types of benefits besides the five listed above.

 

The amount of premium due annually will be stated along with the amount of premium paid with the application. The amount paid with the application may be different than the annual premium stated, since the policyholder may have paid quarterly or semi-annually.

 

The Policy Schedule page will list the policy number and the policy effective date. The first renewal date may also be listed, which will reflect how the first premium was paid (quarterly, semi-annually or annually).

 

 

Policy Terminology

All insurance contracts are legal documents using legal terminology. As part of this, definitions used in the contract will be defined. While some terms may seem standard, this should not be assumed.

 

The exact listing of the page heading may vary, but probably it will state "definitions" somewhere. Whatever the page heading, it will state exactly what the policy terms mean or give the page number in the policy where the definition is listed.

 

The following is a list of commonly used definitions:

 

Home & Community Based Care: Care required and provided in a home convalescent unit under a plan of treatment; in an alternate care facility; or in adult day health care.

 

Home Convalescent Unit: This is NOT a hospital. It may be one of the following:

         the insured's home

         a private home

         a home for the retired

         a home for the aged

         a place which provides residential care; or

         a section of a nursing facility providing only residential care.

 

Plan of Treatment: A program of care and treatment provided by a home health care agency. Each company may include additional information such as:

 

a)       It must be initiated by and approved in writing by your physician before the start of home and community based care; and

b)       It must be confirmed in writing at least once every 60 days.

 

Home Health Care Agency: An entity that provides home health care services and has an agreement as a provider of home health care services under the Medicare program or is licensed by state law as a Home Health Care Agency.

Adult Day Health Care: A community based group program that provides health, social and related support services in a facility that is licensed or certified by the state as an Adult Day Health Care Center for impaired adults. It does not mean 24-hour care.

 

Alternate Care Facility: A facility that is engaged primarily in providing ongoing care and related services to inpatients in one location and meets all of the following criteria:

 

a)       Provides 24 hour a day care and services sufficient to support needs resulting from the inability to perform Activities of Daily Living or cognitive impairment;

b)       Has a trained and ready to respond employee on duty at all times to provide that care;

c)       Provides 3 meals a day and accommodates special dietary needs;

d)       Licensed or accredited by the appropriate agency, where required, to provide such care;

e)       Provides formal arrangements for the services of a physician or nurse to furnish medical care in case of emergency; and

f)        Provides appropriate methods and procedures for handling and administering drugs and biologicals.

 

Many types of facilities would meet these criteria.

 

Medical Help System: A communication system, located in the insured's home, used to summon medical attention in case of a medical emergency.

 

Informal Caregiver: The person who has the primary responsibility of caring for the patient in their residence. A person who is paid for caring for the patient cannot be an informal caregiver.

 

Informal Care: Custodial care provided by an informal caregiver, making it unnecessary for the insured to be in a long-term care facility or to receive such custodial care in the residence from a paid provider.

 

Caregiver Training: Training provided by a home health care agency, long-term care facility, or a hospital and received by the informal caregiver to care for the insured in his or her home.

 

Respite Care: Care including companion care or live-in care, provided by or through a home health care agency, to temporarily relieve the informal caregiver in the home convalescent unit.

 

Long-Term Care Facility: A place which:

 

         Is licensed by the state where it is located;

         Provides skilled, intermediate, or custodial nursing care on an inpatient basis under the supervision of a physician;

         Has 24-hour-a-day nursing services provided by or under the supervision of a registered nurse (RN), licensed vocational nurse (LVN) or a licensed practical nurse (LPN);

         Keeps a daily medical record of each patient; and

         May be either a freestanding facility or a distinct part of a facility such as a ward, wing, unit, or swing-bed of a hospital or other institution.

 

A long-term care facility is not a hospital, clinic, boarding home, a place which operates primarily for the treatment of alcoholics or drug addicts, or a hospice. Even so, care may be provided in these facilities subject to the conditions of the Alternate Plan of Care Benefit provision, if one exists in the policy.

 

Medical Necessity: Care or services that are:

 

         Provided for acute or chronic conditions;

         Consistent with accepted medical standards for the insured's condition;

         Not designed primarily for the convenience of the insured or the insured's family; and

         Recommended by a physician who has no ownership in the long-term care facility or alternate care facility in which the insured is receiving care.

 

Inability to Perform Activities of Daily Living: The insured's dependence on someone else because of the need, due to injury, sickness or frailty of age, for regular human assistance or supervision in performing Activities of Daily Living.

Activities of Daily Living: These will vary from company to company and from policy to policy. The tax qualified plans will vary from the non-qualified plans. The activities listed are very important because they determine the conditions under which payment will be made. Policies that list seven conditions are more favorable for the policyholder than those which list only five (2 out of 7 are better odds than 2 out of 5). The following five are generally included:

 

1.        eating

2.        dressing

3.        bathing

4.        toileting & associated functions

5.        transferring from beds, wheelchairs, or chairs.

 

Cognitive Impairment: Deterioration in the insured's intellectual capacity which requires regular supervision to protect themselves and others. This often must be determined by clinical diagnosis or tests. Cognitive impairment may be the result of Alzheimer's disease, senile dementia, or other nervous or mental disorders of organic origin.

 

Pre-existing Condition: A health condition for which the insured received treatment or advice within the previous 6 months prior to application for coverage.

 

Effective Date of Coverage: The date listed on the Policy Schedule page, which states the first date of coverage under the policy. It is not necessarily the date of policy application.

 

Elimination Period: The number of days in which covered long-term care facility or home and community-based services are provided to the insured before the policy begins to pay benefits. This time period will be shown on the Policy Schedule page.

 

Maximum Lifetime Benefit: The total amount the insurance company will pay during the insured's lifetime for all benefits covered by the policy. This will be shown on the Policy Schedule page.

 

The previous definitions were listed in the order they are most likely to be seen in the policy. Some policies do alphabetize them.

 

Not all companies offer identical benefits. Therefore, benefits received under the terms of the policy contract will depend on the benefit options available at the time of application.

 

 

Elimination Periods in Policies

The beginning date of the benefits will depend upon some options selected. One option affecting this would be the elimination period. The elimination period is a type of deductible. Instead of being expressed as a dollar deductible, however, it is expressed in days not covered. For example, in a major medical plan we commonly see a deductible amount of $500. This amount must be paid by the insured before the insurance company will begin paying for health care claims. In a long-term care policy, the deductible will be expressed as elimination days. A policyholder who selects 30 elimination days will not receive benefits (payment) from the insurance company until the insured begins receiving covered benefits on the 31st day. The first 30 days are not covered. Benefits begin to be payable on the 31st day for covered services. Of course, eligibility must also be established before benefits would be received.

 

 

Policy Termination

It would be hard to imagine a consumer terminating a policy when benefits are in process. It would be more likely that termination would happen during a period of good health. Even so, if termination did occur during eligibility of benefits, the insurance company would continue to provide benefits, subject to all policy provisions, until the insured had not received care for the amount of time specified in the policy, usually 180 consecutive days.

 

If termination occurred during benefit use, it is most likely that it would be due to a group long-term care policy that was terminated by the employing company.

 

 

Mental Impairments of Organic Origin

Some aspects of elder care are of specific concern to consumers. One of those is Alzheimers care. As a result, some policies may specifically state that Alzheimer's disease is covered. It is common for a perspective client to specifically ask if this disease is covered by the policy. Long-term care contracts do cover mental impairments of organic origin. That would include Alzheimers disease, and also senile dementia. These diseases are determined by clinical diagnosis or tests.

 

 

Hospitalization Requirements

Previous hospitalization is required under Medicare to receive their skilled care benefits in a nursing home. This is not necessarily true of long-term care policies. In the past, policies had options for a hospitalization prior to a nursing home confinement. In other words, the consumer could choose to pay extra so that their long-term care policy did not require that they first be in a hospital for the same condition which put them in the nursing home. These policies usually require:

 

1.      Hospitalization first for no less than three days;

2.      Admittance to the nursing home for the same condition that caused the hospitalization;

3.      The nursing home admittance to begin within 30 days of the related hospitalization.

 

The Medicare & You 2004 booklet states: Most long-term care in a nursing home or at home is custodial care (help with activities of daily living like bathing, dressing, using the bathroom, and eating). Medicare doesnt cover this kind of care if this is the only kind of care you need. Medicare Part A only covers skilled care given in a certified skilled nursing facility or in your home. You must meet certain conditions for Medicare to pay for skilled care when you get out of the hospital.

 

Many states require the nursing home policy to cover nursing facilities whether or not hospitalization occurred. These policies will state that no hospitalization is required. Of course, the policyholder must still meet all eligibility requirements of their LTC policy. Since state laws vary, it is important that each agent know how their particular state views hospitalization requirements.

 

Many existing policies do have a hospitalization requirement. Due to this fact, many professionals feel agents should periodically send out letters to their existing clients outlining the benefits they purchased in the past. It allows them to be aware of policy requirements and change to increased benefits if they desire to.

 

Home and Community Based Benefits

Home and community based benefits are available in many LTC policies, either as part of the base plan or as an option that may be added for additional premium. Home and community based benefits are traditionally less expensive than a nursing home confinement so this type of care is less expensive for the insurer to cover. Even though such care is less expensive, however, eligibility standards still exist. Those eligibility standards may have some variations, but typically they require one of the following:

 

1.      The care must be medically necessary.

2.      The policyholder must be unable to perform one or more of the activities of daily living stated within the policy.

3.      There must be some type of cognitive impairment.

 

Benefits payable under the policy will depend upon the options selected at the time of policy purchase. If home care is included in the contract, it will typically be paid at 50% of the institutional benefit. In other words, if $100 per day is paid for the nursing home, then $50 per day will be paid for home care. Many of the integrated plans pay the same daily amount for home and community based care as they pay for nursing home care. Thats because an integrated plan uses a pool of money that may be applied, as the insured desires. An agent should never take this for granted; he or she should always check the policy or call the benefit department of the insurance company for details.

 

 

Bed Reservation Benefit

A Bed reservation benefit is included in many long-term care policies. A bed reservation 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 long-term care facility stay. This provides the security of returning to the same familiar surroundings following the hospitalization. It also prevents the family or hospital from having to locate another suitable nursing home facility.

 

The bed reservation benefit is for a temporary hospitalization. It would not continue indefinitely. Commonly, bed reservation benefits are limited to 21 days per calendar year. Unused days from one year can seldom be carried over into the next calendar year. It may be possible, however, to use bed reservation days to satisfy the elimination period in the policy. Again, the agent will want to check with the issuing company to make sure they allow this.

 

 

Waiver of Premium

It is now common for long-term care policies to contain a waiver of premium. A waiver of premium has to do with renewal premiums during an institutionalization or while receiving benefits under the terms of the policy. When the policyholder has received benefits under the policy for the number of days specified, their renewal premiums will be waived (they dont have to pay them). Many policies will not refund premium that has already been paid, which is why only renewals may apply. Since this is not always the case it is important to understand the terms in each contract. Some policies will refund premium based on quarterly renewal periods. In other words, a policyholder who has paid a yearly premium will receive a refund each quarter of their policy after the conditions have been met qualifying them for a waiver of premium. Some policies also allow hospitalization days during a facility or benefit stay to count towards this waiver of premium.

 

How the elimination period is counted towards a waiver of premium will vary from contract to contract. Some policies allow the elimination period to be part of the time counted towards the waiver qualification while others do not. Those policies that do not allow the elimination period to count towards the waiver of premium require that benefits actually be due and payable under the policy (the insured must actually be eligible to receive payment from the insurer). Therefore, it would look like this:

Elimination Period + Benefit Days = waiver satisfaction.

 

For those who selected a 30-day elimination period when purchasing their policy and a 90-day waiver of premium, the equation would be:

30 days + 90 Days = waiver satisfaction

(120 days total time for waiver qualification).

 

Once the policyholder has not received benefits under their LTC policy for a specified time period (usually 180 consecutive days), the waiver of premium is no longer in effect. The insurance company will again expect premium payment in order for the policy to stay active.

 

 

Selecting Other Types of Care

Many insurers now offer an alternative plan of care, which is covered under the policy provisions. If the policyholder would otherwise need a long-term care facility confinement, the company will pay for an alternative service, devices or benefits. The alternative plan of care must be medically appropriate and medically acceptable. This is determined by specific requirements, including:

 

1.      It must be agreed to by the insured, the insured's doctor, and the insurance company; and

2.      It must be developed by or with health care professionals (not the patient or the patient's family).

 

Contracts that allow alternative plans of care follow the policy payment schedule. Naturally, these benefits will count against the maximum lifetime benefits of the policy.

 

 

No Policy Covers Everything

As every agent knows, no policy covers everything. All policies, including long-term care contracts, have a section in the contract that lists exclusions (items not covered). It is often easier to understand a policy by reading what is NOT covered.

 

There are traditional exclusions that are in virtually every contract. Policies will not pay for:

 

1.      Losses due to a condition for which the policyholder can receive benefits under Workers' Compensation or the Occupational Disease Act;

2.      Losses due to the result of war or any act of war; and

3.      Losses payable under any federal, state, or other government health care plan or law, except Medicaid. The company will reduce their benefits in direct relationship to the amount covered by any government health care plan or law to the extent that the combination of payments exceed 100% of the actual charge for the covered service.

 

Of course, no policy will pay for losses that occurred or began prior to the purchase of the policy. You cant crash your automobile and then go buy coverage for it.

 

All policies will list preexisting condition limitations. It is important to disclose all preexisting conditions on the application at the time of policy purchase. If this is not done, an otherwise valid claim could be denied during the preexisting period. If the undisclosed medical condition is serious enough, the policy may actually be rescinded (voided).

 

Agents who routinely do not disclose obvious or stated medical conditions risk being red tagged by the insurers. This means they underwrite all applications to a greater degree because the insurer is not confident that the agent is truthfully listing all medical conditions. In some cases the insurer may even refuse applications from a seemingly dishonest agent. Agents who knowingly fail to list all stated or obvious medical conditions are clean-sheeting the application.

 

There is another reason agents and applicants need to disclose all known medical conditions: many issued long-term care policies will cover all medical conditions immediately (even those existing at the time of policy issue), as long as the condition was listed on the application. If the condition was not listed, it is then subject to any pre-existing time periods listed in the policy. If serious enough, the policy could still be voided as well.

 

 

Age Misstatement

Age misstatement on the application is seldom considered a serious offense, although it can be in specific situations. If the age is misstated downward (stating a younger age) any additional premium must be paid to keep the policy in force. An error in age upwards (stating an older age) will trigger a premium refund, if applicable. If a younger age was purposely stated, it is usually done to save money since so many LTC policy premiums are based on age at application. Obviously, the insurers do not allow this. Sometimes the premium cost is considerable between certain ages, such as between a 69-year old and a 70- year old. That is why it is so important to consider this type of coverage at younger ages.

 

Few companies rescind (void) a policy due to age misstatement. It may happen, however, if the age misstatement puts the applicant in an age bracket that is not acceptable for underwriting (an 80-year old who is listed as 79 might fall into this category). The company would, however, require that the additional premium be paid. If the correct age would have meant that the policy would not have been issued at all, then the premium that was paid will be returned to the consumer and the policy voided.

 

 

Forgetfulness: Notifying a Third Party of Premium Due

Many policies now allow a third party notification when unpaid premiums are due. The third party is chosen by the insured, usually at the time of policy issue. The insured has the right to change the third party listing at each policy renewal, or at least yearly.

 

When the policyholder has listed a third party notification, that person would receive notice if the policy were in danger of lapsing due to nonpayment of premiums. The notice would be sent to them in writing at least 30 days prior to policy termination. The intent is to prevent an accidental policy lapse. This is most likely to happen as people age and forgetfulness becomes a problem. If that is the situation, a policy lapse can be especially distressful for the family.

 

There is one final safeguard if premiums are not paid on time: there is a 31-day grace period. This means that the policyholder has 31 days past the actual premium due date in which to make payment. The policy would remain in force and claims would be covered during this 31-day period. If a claim occurred, the premium would have to be paid in order to receive benefit payment.

 

 

Reinstatement of a Lapsed Policy

Under some circumstances, a lapsed policy may be reinstated (put back in force). Sometimes, simply paying the unpaid premium is enough to reinstate the policy. In other cases, a new application for reinstatement must be submitted and perhaps even underwritten. Any back premium will still be due.

 

Why would a person reinstate rather than simply apply for a new policy? The most likely reason is to keep the issue-age the same, since the policyholder was probably younger when he or she first applied for coverage.

 

Many states have mandated specific reinstatement requirements as a consumer protection measure. This would especially be true if the lapse were due to some cognitive impairment or some type of functional incapacity. Functional incapacity typically means the inability to perform a specified number of the activities of daily living. When this is the case, the insured will have six months following the policy lapse (due to nonpayment) to reinstate it. Such reinstatement is especially important in these cases, because the insured cannot qualify for a new policy due to their medical problems. Any person authorized to act on behalf of the insured may also apply for policy reinstatement due to cognitive impairment or functional incapacity.

 

The insurer will require proof of cognitive disability when the insured, or their family, requests policy reinstatement. They will accept clinical diagnosis or tests demonstrating that cognitive impairment or functional incapacity existed at the time the policy terminated. The insured must bear the expense (if any), in most cases, for supplying medical proof.

 

Long-term care policies can be intimidating to the consumer. Therefore, they rely on the knowledge of their agent. An agent who does not completely understand the long-term care contracts (policies) should not attempt to market them. The degree of possible error is just too high. When errors are made, they may not be discovered until the insured needs to use the policy the worst possible time to discover it.

 

End of Chapter Two

United Insurance Educators, Inc.