Designing A Personal Policy

 

 

Not every individual will desire, or feel they need, the same policy benefits in their long-term care insurance policy. While most states mandate some types of coverage, such as equality among the levels of care, there are other options that may be purchased or declined. A trained and caring agent can help the consumer understand those options and make wise choices.

 

 

What Will the Choices Include?

All policies must follow specific guidelines, including those mandated by the federal government and those mandated by individual state governments where the policies are issued. Policies following federal guidelines will be tax-qualified, whereas the policies following state guidelines will be non-tax qualified plans. Many states mandate specific agent education prior to being able to market or sell LTC policies to ensure that the field agents properly represent the products.

 

All policies offer some options, which may be purchased for additional premium or refused. When refusing some types of options, a rejection form must be signed and dated by the applicant. In some states, an existing policy may be modified; in others an entirely new policy would be required when changes are desired.

 

When a consumer decides to purchase an LTC policy, several buying decisions must be made. These could include:

 

1.      How much is to be paid in benefits per day if confinement in a nursing home occurs.

2.      The length of time the policy will pay benefits. This is likely to range from one year to lifetime. Of course, the longer the period of benefit time, the more expensive the policy will be.

3.      Whether or not to include an inflation protection to guard against rising costs.

4.      Is an inflation guard desired? This allows daily benefits to increase over a specified time period.

5.      The waiting period, also called an elimination period, must be selected. This is the period of time that must pass while receiving care before the policy will pay for anything. It is a deductible expressed as days not covered. The option can range from zero days to 100 days. A few policies may have a choice of a longer time period.

6.      The specific type of policy to be purchased. Many states have an assortment to choose from.

 

As every field agent knows, clients often prefer to have the agent make selections for them, but this is not wise. Although the agent will be valued for the advice he or she gives, the actual benefit decisions need to be made by the consumer. This means the agent must fully explain each option so that the consumer can make informed choices. In a way, it is similar to the cafeteria insurance plans where employees had an array of choices in benefits. The difference is that the long-term care policies have no limits on the choices that the consumer can make. If he or she is willing to pay the price, absolutely everything available can be selected.

 

 

Daily Benefit Options

While there are many policy options, the daily benefit amount is usually the first policy decision, with the second one being, the length of time the benefits will continue. Both of these strongly affect the cost of the policy.

 

The daily benefit is based upon the type of policy selected. Policies that cover institutional care in a nursing home will have options that may vary from policies that cover only home care benefits. Integrated policies will vary from those that pay a daily indemnity amount. Many states have mandatory minimum limitations ($100 per day benefits for example). Insurance companies will determine the upper possibilities. Obviously, the consumer cannot select a figure higher than offered by the issuing company. Nor can an insurer offer a daily indemnity amount that is lower than those set by the state where issued. At one time insurers offered as low as a $40 per day benefit in the nursing home. By todays standards, that would be extremely inadequate for nursing home care.

 

This daily benefit can have variations. Some policies will specify an amount (not to exceed actual cost) for each nursing home confinement day. Other policies (called integrated plans) offer a more relaxed benefit formula. These policies have a "pool" of money, which may be used however the policyholder sees fit, within the terms of the contract. This means that this "pool" of money could be spent for home care rather than a nursing home confinement. Benefits will be paid as long as this maximum amount lasts regardless of the time period. The danger in having a pool of money, however, is that the funds may be used up by the time a nursing home confinement actually occurs. If the funds have been previously used up, there will be no more benefits payable. Since people prefer to stay at home, this may work out well, but it can also quickly deplete funds in a wasteful manner.

 

While there are not specific figures available across the board (individual insurers most certainly do keep these figures for their company), most policies are probably still written as a set daily benefit amount. The amounts paid will usually vary depending upon whether they are going towards a nursing home confinement, home health care, adult day care, and so forth. The "pool of money" is gaining popularity, however, since consumers see it as a way to make health care choices more freely. Integrated policies are generally more expensive than indemnity contracts.

 

Expense-Incurred and Indemnity Methods of Payment

When benefits are paid from a specific dollar schedule for a specific time period, they are generally paid in one of two different ways:

 

1.      The expense-incurred method in which the insured submits claims that the insurance company then pays to either the insured or to the institution up to the limit set down in the policy.

2.      The indemnity method in which the insurance company pays benefits directly to the insured in the amount specified in the policy without regard to the specific service that was received.

 

Of course, both methods require that eligibility for benefits first be met.

 

 

Determining Benefit Length

While the daily benefit is typically the first choice made, the second choice is just as important to the policyholder: the length of time for which benefits will be paid. This may apply to a single confinement or it can apply to the total amount of time spent in an institution. An indemnity contract offers benefits payable for a specified number of days, months or years (depending upon policy language). An integrated plan pays whatever the daily cost happens to be unless the contract specifies a maximum daily payout amount. When funds are depleted, the policy ends.

 

While statistics vary depending upon the source, most professionals feel a policy should provide benefits for at least three years of continuous confinement. The average stay is 2.5 years according to federal figures. Of course averages are made up of highs and lows. Some people will only be in a nursing home for three months while others may remain there for five years. Using the average stay, however, is a good medium figure. Since the majority of consumers will not be willing to pay the price for a life-time benefit, three or four year policies are likely to do a good job for them and still be affordable.

 

 

Policy Structure

We have seen much legislation by the states directed at long-term care policies. Even the federal government has been involved in this with the tax-qualified plans. It is important to note that tax-qualified plans always come under federal legislation whereas non-tax qualified plans come under state legislation. Each state will have specific policy requirements. The states will assign descriptive names in an effort to identify policies in a way that consumers can comprehend. Such terms as Nursing Facility Only policy, Comprehensive policy or Home Care Only policy will be used. Each state will have their specific way of labeling policies. Some states also require their agents to complete specific education on long-term care policies prior to selling them. Even in those states that do not have special continuing education requirements, however, it is necessary for agents to acquire knowledge in this field. Long-term care policies often do not pay benefits for years after purchase. An error on the part of the agent can have devastating consequences.

 

 

Home Care Options

While it is very important to cover the catastrophic costs of institutionalization in a nursing home, most Americans would prefer to remain at home. It is often possible to obtain both nursing home benefits and home care benefits in the same policy. In such a case, home care is typically covered at 50 percent of the nursing home rate. Therefore, if the nursing home benefit is $100, the home care rate will be $50. This may not be adequate funding for home care. If home care is a primary concern, it may be best to purchase a separate policy for this if financially possible. Some home care policies carry additional benefits such as coverage for adult day care.

 

 

Inflation Protection

Industry professionals generally recommend inflation protection, but the cost can be high. Those who purchase at younger ages are especially encouraged to add this feature since the cost of long-term care is certain to increase over time. The cost of providing long-term care has been increasing faster than inflation. At older ages, the consumer will need to weigh the cost of the additional premium option with the amount of increase in benefits that will be produced.

 

The rising costs of institutional care surpasses the increase in the Consumer Price Index. Over the next 30 years, we expect nursing home care to reach around $117,000 per year. Many areas will see higher rates. For retired people on a fixed income, such costs will probably be beyond their means.

 

Many in the health care field state that the amount of increase is not adequate, but it will help to offset the rising costs of long-term care. The inflation protection, usually a 5 percent yearly increase, may eventually become part of all policies, but currently it is most likely to be just an option that the consumer must accept or reject. Some states require the consumer to sign a rejection form as proof that the agent offered the option.

 

Simple and Compound Protection

Inflation protection is offered in one of two ways: simple increases in benefits or compound increases in benefits. Like interest earnings, the benefits increase based on only the original daily indemnity amount or on the total indemnity amount (base plus previous increases). Some states mandate that all inflation protection options offered must be compound protection; others allow the insurers to offer both types. Under a simple inflation benefit, a $100 daily benefit would increase by $5 each year. Under a compound inflation benefit the protection increases by 5 percent of the total daily benefit payment. This is called a compound inflation benefit because it uses the previous year's amount rather than the original daily benefit amount. This is the same basis used with interest earnings on investments. Compound interest earnings are always better than simple interest earnings. The following graph more clearly illustrates how compounding works with the inflation protection riders.

 

 

Year 1

Year 2

Year 3

Year 4

Year 5

Base Policy

$100

$100

$100

$100

$100

Simple

$100

$120

$145

$170

$195

Compound

$100

$121

$155

$197

$252

 

 

Required Rejection Forms

The individual state insurance departments generally recommend inflation protection riders to their citizens. Inflation protection plans must continue even if the insured is confined to a nursing home or similar institution. Many states are now requiring a signed rejection form if the insured does not accept the inflation protection option. Although this is intended to be consumer protection, it is also agent protection. It assures that the family of the insured will not later try to sue the agent for failing to sell the inflation protection.

 

 

Elimination Periods in LTC Policies

In auto insurance and homeowners insurance, higher deductibles are recommended as a way of reducing premium cost. The point is catastrophic coverage not coverage of the small day-to-day losses. The same is true when it comes to health insurance. In long-term care contracts, there are a variety of waiting or elimination periods available in policies. Basically, a waiting or elimination period is simply a deductible expressed as days not covered. The choice is made at the time of application. Policies that have no waiting period (called zero elimination days) will be more expensive than those that have a 100-day wait. Fifteen to thirty elimination days are most commonly seen, although the zero day elimination period has gained popularity.

 

As one might expect, the longer the elimination period, the less expensive the policy; the shorter the elimination period, the more expensive it is.

 

Zero day elimination = higher cost.

100 day elimination = lower cost.

 

All the variables between the two extremes will have varying amounts of premium; 30 day elimination will be less premium than 15 day, and so on.

 

When considering which elimination period is appropriate, one should consider the consumer's ability to pay the initial confinement. For example, if a thirty-day elimination is being considered at $100 per day benefit, by multiplying $100 by 30 days, it is possible to see what the consumer would first pay: $3,000 before his or her policy began. If this is something the consumer is comfortable with, then it may be appropriate to choose a 30-day elimination period. Again, a larger elimination (deductible) period will mean lower yearly premium costs.

 

 

Policy Type

The specific type of policy to be purchased can be a harder question. Many of the nursing home policies are basically the same, with differences being hard to distinguish. It is very important that the agent fully understand what those differences are before presenting a policy. Some policies will offer coverage only in the nursing home while others offer a combination of possibilities. The insurer will mark their policy types in some specific way. The agent is responsible for understanding the differences.

 

Many policies offer extra benefits, which are referred to as "bells and whistles" because they give additional features, but those features are not vital to the effectiveness of the policy. Even so, consumers may find value in them.

 

 

Home Modification Benefit

A home modification benefit will be available in some policies. This benefit is designed to keep the patient at home, avoiding institutionalization. The ability to remain at home saves the insurance company money and makes the patient happier. Modifications are typically specified. The insurer will not cover a kitchen remodel. Rather it is intended for such things as installing grab bars in showers and tubs, widening doorways for wheelchair access, installing ramps for wheelchairs, raising or lowering fixtures, such as toilets and sinks, and so forth.

 

 

Rental of Medical Devises

Although Medicare and Medigap policies cover many medical equipment rentals, some long-term care policies will also cover such items. However, if Medicare pays for the rental, it is unlikely that the long-term care policy would duplicate coverage. Most policies expressly eliminate duplication of benefits.

 

 

Caregiver Training

A major obstacle to receiving care at home is often finding a person qualified to provide it. When home care is possible from a medical standpoint, many long-term care policies will pay to train the caregiver. In such cases, the caregiver is often the spouse. The purpose of this is to save the company money by preventing a nursing home confinement. It is also appropriate because the patient is usually much happier at home in familiar surroundings. Spouses are typically called informal caregivers and do not receive payment for their services. This is not always the case. In some situations, the spouse may receive training and receive payment for their services in a limited way.

 

Additional options such as these may or may not have benefit amounts based on the minimum daily benefit for nursing facility coverage or home care coverage. They also may or may not be subject to the elimination period. The agent will need to determine these answers prior to marketing the product.

 

 

Restoration of Policy Benefits

Some policies have a restoration benefit in their policy. This means that part or all of used benefits renew after a specific length of time and under specific circumstances. During this period of time, the policyholder must be claim free.

 

 

Preexisting Periods in Policies

Obviously as we age it is more likely that our health will not be perfect. High blood pressure, arthritis, or other ailments are likely to develop. It is possible that conditions existing at the time of application could present claims soon after the policy is issued. Because of this, companies have what is called a preexisting condition period.

 

A preexisting condition is one for which the policyholder received treatment or medical advice within a specified time period prior to policy issue. Under federal law, that period of time prior to application is six months. Failure to disclose conditions that were known to the applicant can result in claims being denied when benefits are sought for or result from that condition. Medication, it should be noted, is treatment. In some cases, the company will even rescind the policy for undisclosed information. Some policies will cover all conditions that were disclosed but apply the preexisting period to any that were not listed.

 

When the preexisting period has passed, all medical conditions are then covered. Not all policies will impose a preexisting period. As long as the condition was disclosed at the time of application, all claims will be honored. Other policies do impose preexisting periods, but usually no more than six months from the time of policy issue. Policies tend to specifically list preexisting conditions in a separate paragraph in the policy.

 

 

Is Hospitalization First Required?

Sometimes hospitalization is required and sometimes it is not prior to entering a nursing home. Some states do not allow insurers to require prior hospitalization; other do allow it. In states that allow prior hospitalization, policies may still offer a non-hospitalization option for extra premium.

 

When prior hospitalization is required in a policy, typically the patient must have been there for three or more days. They must also have been admitted to the nursing home for the same condition for which they were hospitalized. The nursing home admittance may have to be anywhere from 15 to 30 days following discharge from the hospital.

 

 

Choosing Federal Tax-Qualified or State Non-Tax Qualified Policies

The primary decision deals with the tax-qualified or non-tax qualified policies. In fact, this is probably a more important choice than the daily benefit or the term of benefits. One might easily assume that everyone would want a tax-qualified plan, but that is not necessarily the best choice. There are advantages and disadvantages to both. The chapter on Qualified Versus Non-Qualified will deal in greater depth with the issue. In this chapter, we will simply say that the major difference has to do with benefit triggers. Benefit triggers are the conditions that "trigger" benefit payment from the insurance company. If a person needs to enter a nursing home, but his or her policy will not pay because the medical condition is not a benefit trigger under the policy, the consumer is bound to be unhappy with the agent and the insurance company. Therefore, it is vitally important for agents to understand the difference between the two and fully disclose those differences to the consumer.

 

Qualified plans come under the federal legislation that was passed. Federally qualified long-term care policies which provide coverage for long-term care services must base payment of benefits on certain criteria requirements:

 

1.      All services must be prescribed under a plan of care by a licensed health care practitioner independent of the insurance company.

2.      The insured must be chronically ill by virtue of either one of the two following conditions:

a.      Being unable to perform two of the following activities of daily living (ADL): eating, toileting, transferring in and out of beds or chairs, bathing, dressing, and continence, or

b.      Having a severe impairment in cognitive ability.

 

There are differences in the ADLs of qualified and non-qualified long-term care plans. These differences are important because they relate to the benefit triggers. Tax-qualified plans have eliminated the ADL of ambulation (the ability to move around independently of others).

 

 

Nonforfeiture Values

State regulators are giving nonforfeiture values a hard look. With rising premiums, many long term clients are finding they can no longer afford to keep their policy. When a consumer has held a long-term care policy for many years, never claiming any benefits, a lapse of the policy means wasted premium dollars, which have been paid out over several years. It obviously means that insurers have benefited while consumers have merely wasted premium dollars. If they are forced, through rising costs, to abandon their policies as they approach the age of needing the benefits insurers have benefited unfairly. Federal law requires that companies at least offer a nonforfeiture provision to the prospective policyholder in tax-qualified plans. Non-tax qualified plans do not need to offer this additional benefit, unless state law requires it. Even when it is available (for extra premium), unfortunately the importance of it may not be recognized by consumers. Even agents often fail to realize the importance of nonforfeiture values.

 

 

Waiver of Premium

Waiver of premium is offered in most policies. Some make this benefit part of the policy for no added premium while others view it as an option that must be purchased. Waiver of premiums occurs when the policyholder is in the nursing facility as a patient. At a given point, he or she no longer needs to pay premiums, but benefits do still continue. The point of time when the waiver kicks in will depend upon the policy and its language. Some policies specify that the waiver starts counting only from the time the company is actually paying benefits; other policies let it begin from the day of confinement. This is an important point unless the policyholder has selected a zero elimination period. If a zero elimination period were selected there would be no difference between the two types.

 

If the policy waiver of premium begins from the day the insurer actually pays benefits and the policy contains a 30-day elimination period, it would look like this:

 

30 days + benefit days = waiver of premium satisfaction.

 

While the period of time can vary, it is common to begin after 90 benefit days. Therefore, it would be 30 days plus an additional 90 benefit days before the waiver actually became effective. If the confinement stops, the premiums are reinstated, but the policyholder would not have to pay premiums for the previously waived time period.

 

If the policyholder is paid ahead, most companies will not refund premium, even though the waiver of premium has kicked in. The policyholder would have to wait until premiums were actually due to utilize this feature. Some of the newer policies will, however, make refunds on a quarterly basis for paid-ahead premiums during qualified waiver of premium periods.

 

 

Unintentional Lapse of Policy

As an individual ages, forgetfulness is commonplace. Many states now have provisions for unintentional lapses of policies. Both regulators and insurers have realized that this may especially be a problem in the older ages and especially when illness has developed. A long-time policyholder, without meaning to, can allow a policy to lapse for nonpayment of premiums. It can happen when coverage is most needed because illness or cognitive impairment has developed. Therefore, many states have provisions that allow the policyholder to reinstate without having to go through new underwriting. Of course, past premiums will need to be paid.

 

The length of time that may pass while still allowing reinstatement varies. Typically, insurance companies allow a 30-day grace period anyway, but some reinstatement periods can be as long as 180 days (again, past due premiums must be paid). It is the waiver of new underwriting that is most important since illness or cognitive impairment may be a factor is the lapse. Obviously, having to underwrite a new policy could mean rejection for the insured. The existing policy is simply reinstated as it was before the lapse.

 

 

Bed Reservation Option

The bed reservation option sounds like something a travel agent should be involved in. Actually, it has to do with maintaining the bed in the nursing home if the patient must be temporarily hospitalized. Not all contracts offer bed reservation benefits. In those that do, should the insured temporarily enter the hospital, their bed in the nursing home will continue to be paid for. This enables the person to come back to familiar surroundings, rather than go to a new nursing home when they leave the hospital. There are calendar year limitations on this benefit.

 

Some bed reservation benefits are simply included in the policy; others offer it as an option for an extra premium.

 

 

Policy Renewal Features

It is now common for nursing home policies to be either guaranteed renewable or non-cancelable.

 

Guaranteed renewable means that the insured has the right to continue coverage as long as they pay their premiums in a timely manner. The insurer may not unilaterally change the terms of the coverage or decline to renew. The premium rates can be changed.

 

Non-cancelable means the insured has the right to continue the coverage in force as long as they pay their premiums in a timely manner. Again, the insurer may not unilaterally change the terms of coverage, decline to renew, or change the premium rates. Please note non-cancelable policies may not change premium rates.

 

Please note that the difference between guaranteed renewable

and non-cancelable is the insurer's ability to change premium rates.

 

 

Items Not Covered by the LTC Policy

All policies have exclusions (items that are not covered by policy benefits). While states will vary to some extent on what may be excluded, some items are fairly standard in the industry. These include, but may not be limited to:

 

1.      Preexisting conditions, under certain circumstances;

2.      Mental or nervous disorders, except for Alzheimer's and other progressive, degenerative and dementing illnesses;

3.      Alcoholism and drug addition;

4.      Treatment resulting from war or acts of war, participation in a felony, riot, or insurrection, service in the armed forces or auxiliary units, suicide, whether sane or insane, attempted suicide, or intentional injury, aviation in the capacity of a non-fare-paying passenger, and treatment provided in government or other facilities for which no payment is normally charged.

 

 

Extension of Benefits

If an insured is receiving benefits and for some reason the policy cancels, most states have provisions that require benefits to continue. This is called Extension of Benefits. It does not cover an individual whose benefits under the policy simply run out or are exhausted.

 

 

Partnership Policies

The goal of Partnership policies is estate preservation. Partnership policies may never reach all states. At this time, Partnership policies are only available in California, Connecticut, Indiana and New York. They are not currently available in Washington state, although legislation has been adopted to allow them to operate. In these states, private insurers in partnership with each states Medicaid program sell Partnership policies. With these policies comes a guarantee that some or all of one's assets will be protected from Medicaid spend-down requirements, even if the benefits run out under the insurance policy. Therefore, it is not usually necessary to purchase lifetime benefits when buying a Partnership policy, simply enough to cover the quantity of assets to be protected. A three to four year policy is usually recommended.

 

In California and Connecticut, the amount of insurance protection purchased is the amount of assets that will be protected (dollar for dollar protection). It is not necessary to spend-down that money, although anything over that amount would have to be spent down. New York is even more generous. They allow asset protection if a Partnership policy is purchased with three or more years of coverage. When such a policy is purchased, the insured becomes eligible for Medicaid after the insured period (or after 6 or more years of home care) without spending down any assets at all.

 

Indiana was originally like California and Connecticut, but now this state is a combination formula, combining dollar-for-dollar protection and state set dollar amounts. If a state-set dollar amount is purchased initially, the person earns total asset protection. If initial coverage purchased is less than this specified amount, the person earns dollar for dollar asset protection.

 

Since states may change how they view asset protection, agents in these states are encouraged to seek current information on Partnership policies to ensure updated information.

 

Partnership Plans Protect Assets, Not Income

It should be noted that Partnership policies protect assets, not income. Income must still be spent on nursing home care, apart from any allowance for a spouse or for personal needs. This is true for all policies, not just Partnership policies. No policy protects income once benefits are used up and the insured goes on Medicaid.

 

Partnership policies can be as good, better or even worse than traditional policies. It depends, of course, on the options chosen. It is common to see news articles rating policies, but these ratings are often unreliable because they do not reflect the options chosen. It is important for the insurance agent to fully explain available options and allow the potential insured to make their own choices. Industry specialists feel selling agents should always encourage inflation options. Assisted living benefits are also very important since it allows a dignified alternative to institutionalized care, if medical conditions permit. Policies that allow a person to qualify for benefits easily are certainly an advantage that should be considered.

 

Consumer Reports magazine (October 1997) felt California Partnership policies were the best. The other three states lacked guaranteed coverage for assisted living (Washington state was not included in this article). Even so, the fact that all Partnership policies guarantee conservation of assets is worthwhile.

 

Partnership Benefits Are Not Portable

Partnership plan benefits are not portable, they only guarantee asset protection in the state where purchased. If the insured moves Partnership policy benefits are retained, but not the feature that protects assets from Medicaid spend-down when benefits are exhausted. They only work in states that have Partnership plans available. Therefore, if a person buys such a plan in California but moves to Arizona asset protection is lost. It will still pay benefits according to the contract, but Medicaid application will not recognize the asset protection that the policy was intended for.

 

Partnership Commissions

Commissions for selling Partnership policies are the same or similar when compared to selling other long-term care policies. Special education is generally required, however, before an agent can market them. In those states where Partnership policies exist, it has been reported that few agents seem to be marketing them. Perhaps it is because of the additional education required or perhaps the cost seems higher than other policies. Whatever the reason, Partnership policies offer a benefit that other policies do not: asset protection.

 

Robert Wood Johnson Foundation

Partnership long-term care plans were set up with grant money from the Robert Wood Johnson Foundation. This foundation also made grants to Consumer Report magazine for some of their research on health-care issues for seniors. The intent was to help people with assets of between $30,000 and $100,000, who are considered to be the non-poor, but subject to losing everything if a nursing home confinement occurs. In addition, it was felt that Medicaid would save money by transferring the costs of nursing-home care over to insurance companies.

 

Affordability of Contracts

No matter how important asset protection might be, if the policies are not affordable they will not accomplish what was intended. Those who developed the Partnership programs recognized that the consumers most likely to buy long-term care partnership coverage were also going to be sensitive to rate and premium increases. The goal was to give partnership policies economic value to those insured, both when issued and at the time a claim occurs. Of course, they also wanted to encourage a competitive marketplace since that tends to keep prices down and values high. Low lapse rates were also a priority, since a policy that is purchased but not maintained does no good for anyone. It is necessary to have a long-term commitment to such policies since they are often purchased many years before the need for their benefits arrive. Since the partnership plans are an experiment in the four states that offer them, Federal law actually discourages other states from enacting them. Some members of Congress are hesitant to encourage the private insurance companies in this marketplace because they fear it will discourage government involvement and further bury the chances for government-sponsored universal coverage.

 

Dollar For Dollar Asset Protection

Dollar for dollar asset protection is probably the easiest to understand:

 

 

 

Assets:

LTC

Insurance Payouts:

Medicaid

Countable

Assets:

Pete

$50,000

$50,000

$0

John

$200,000

$200,000

$0

Marjorie

$1,000,000

$200,000

$800,000

Betty

$200,000

$0

$200,000

 

Pete, who has $50,000 in assets, would normally be required to "spend-down" this money before qualifying for Medicaid. By purchasing $50,000 worth of insurance benefits, he will have fully protected his assets. The same situation also applies to John. He has purchased enough insurance benefits to cover his assets.

 

Marjorie (a wealthy widow) has a million dollars in assets. Rather than attempt that amount of insurance protection, which would be difficult to do, she simply buys sufficient insurance for a lengthy nursing home stay. Marjorie should probably buy a lifetime policy with high daily benefit levels. Her goal is to protect the amount of assets that would likely go to a nursing home confinement. She does not need to try to match her assets since it is unlikely that it would be necessary to do so. She merely needs to allow for full nursing home protection.

 

Betty believes her children will take care of her. Not only does she believe this; she expects it. Since she has made it known that it is their "duty" she feels no compulsion to protect herself through insurance. Therefore, her entire $200,000 will be Medicaid countable assets.

 

Betty did not have to put the burden on her children. Many who fail to buy such protection have no intention of doing so. They merely believe that (a) they are so healthy they will never need such protection; (b) the government or Medicare and their Medigap policy will be adequate; or (c) they can't bear to even consider the possibility that they may need a nursing home so they choose to close their eyes to the entire subject.

 

Betty may also have a different approach. She may simply feel that she does not mind spending her $200,000 for nursing home care. In fact, she may have set aside this money for that exact purpose. If that is the case, she actually has planned ahead. She simply planned a different way than did Pete, John and Marjorie.

 

 

Standardized Definitions

As is so often the case, definitions need to be standardized to avoid misunderstandings or benefit denial. No policy may be advertised, solicited or issued for delivery as a long-term care Partnership contract which uses definitions more restrictive or less favorable for the policyholder than that allowed by the state where issued.

 

Minimum Partnership Requirements

Long-term care partnership policies do, of course, have minimum standards, which must be met. Standards are based on the state where issued. Since each state may have different state requirements, plans may vary from state to state. In all states, an agent would be acting illegally if he or she told a prospective client that the policy he or she was demonstrating for sale was a Partnership policy when, in fact, it did not meet partnership criteria.

 

The minimum standards set down by each state are just that: minimums. They do not prevent the inclusion of other provisions or benefits that are consumer favorable, as long as they are not inconsistent with the required standards of the state where issued.

 

Benefit Duplication

It is the responsibility of every insurance company and every agent to make reasonable efforts to determine whether the issuance of a long-term care Partnership policy might duplicate benefits being received under another disability insurance policy, long-term care policy, or duplicate other sources of coverage such as a Medicare supplemental policy. The insurance company or agent must take reasonable steps to determine that the purchase of the coverage being applied for is suitable for the consumer's needs based on the financial circumstances of the applicant or insured.

 

Partnership Publication

Every applicant must be provided with a copy of the long-term care Partnership publication (which was developed jointly by the commissioner and the department of social and health services) no later than when the long-term care partnership application is signed by the applicant.

 

On the first page of every Partnership contract, it must state that the plan is designed to qualify the owner for Medicaid asset protection. A similar statement must be included on every Partnership LTC application and on any outline or summary of coverage provided to applicants or insureds.

 

Partnership Continuing Education Requirements

The states have passed continuing education requirements for those agents wishing to market Partnership policies. Although Washington state may never be able to market Partnership plans, it has also passed educational requirements. It is the responsibility of each agent to contact their state and determine what those requirements are.

 

 

These special educational requirements do not apply to Medicare supplement policies, contracts between a continuing care retirement community and its residents, or to long-term care insurance policies that do not claim to provide asset protection under the Partnership legislation.

 

End of Chapter Five

United Insurance Educators, Inc.