Receiving Benefits-Qualified and Non-qualified Policies
HIPAA (Health Insurance Portability & Accountability Act of 1996) legislation is specific for receiving benefits under a tax-qualified policy. First of all it defines qualified long-term care services and then defines the conditions to be met for the insurance to pay. All qualified policies contain derivations of this language:
Qualified Long-Term Care Services
Qualified long-term care services are:
- Necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance and personal care services, and
- Required by a chronically ill individual and provided pursuant to a plan of care prescribed by a licensed health care practitioner.
Chronically ill individual
You are chronically ill if you have been certified by a licensed health care practitioner within the previous 12 months as one of the following:
- You are unable for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual due to loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing and continence, or
- You require substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
Non-qualified policies use similar benefit triggers but usually add a third trigger: "If deemed medically necessary" Which might make qualification easier. These policies also leave out the restrictive language such as: "substantial supervision", and "for at least 90 days". On the other hand this more liberal approach is offset by the fact that the insurance company often determines eligibility with non-qualified; whereas, a third party, impartial, licensed health care practitioner certifies eligibility under qualified policies. Cognitive impairment covers Alzheimer's, stroke, dementia and other organic nervous disorders with both policy forms.
Some policies include an IRS definition waiver that also lessens the advantage of the "medical necessity" clause of non-qualified contracts. These waivered qualified contracts allow either as a policy rider or by contract language the "substantial assistance" (which is interpreted as hands-on assistance) to be redefined as "substantial or standby assistance". Standby assistance does not require "hands-on" and may be nothing more than verbal encouragement or an assuring presence. This added dimension under some circumstances might make it easier to certify for benefits under a qualified contract. Read your policy carefully, not all contracts offer this more liberal provision.
Understanding Facilities Care Daily Benefit Amounts
Daily nursing home benefits are the most integral part of the coverage. These are all policies offered 30 years ago. All the other benefits have been tacked on since. It is important to note that with the exception of 2 carriers, costs are paid as incurred daily. Any extraordinary costs above the daily limit will not be paid. This is why Prudential and UNUM offer to pay costs as incurred monthly. They think it's more fair.
Daily policy benefits cover primarily room and board and skilled or custodial care which are usually included in the whole package price from an institution. Anything payable by Medicare is not covered by the policy but Medicaid can pay in addition to insurance. All levels of licensed facilities are covered to include Alzheimer's facilities, skilled care, intermediate care and custodial care facilities. Assisted living facilities (ALF) or alternative care facilities (which in many states means assisted living) are covered under all modern integrated policies. ALF may be covered under the facilities part or it may be covered under the home and communities care part of the policy. The best policies cover it under facilities. When covered under home care it often pays at the 50%, 75% or 80% of facilities reduced benefit imposed on home care. Bear in mind that it's possible to be in a facility especially an ALF and not qualify for insurance to pay the bill.
Determining the amount of daily benefit is a financial planning exercise. Since LTCi is primarily a product for old age, the amount of daily benefit is determined by sources of retirement income and how much of that income can be used to supplement insurance to pay LTC costs.
I have found that individuals with higher incomes and for whom premiums are more affordable, prefer to buy the average daily benefit cost of coverage for their region and protect it with a compound inflation rider.
Understanding Home and Community Care Daily Benefit Amounts
All recent surveys indicate people would prefer to receive care at home rather than in an institution. Ironically, most group plans tend to limit home care to 50%, 75% or 80% of the amount paid for facilities. A $120 per day policy for example might only pay $60 per day for home care, adult day care or hospice, and if it's really a poorly designed policy, $60 per day for assisted living. When home care gets to a point where the paid services of professionals or aides are required, the tendency is to institutionalize the person in need. This is because family physicians and long-term care professional counselors know that to qualify for Medicaid, the primary source of long-term care funding, a pay down period of assets has to begin. In many states, Medicaid is biased towards using nursing homes for care. (Some state Medicaid programs such as North Carolina prefer to use home care programs) Because of this bias, advisors urge caregivers to put loved-ones in institutions in order to start the clock on asset spend-down. As insurance grows to become a major source of funding, advisors and providers will tend to favor home care. Thus, the current insurance company attitude to providing less home care will have to change.
More insurance funding for home health care will reverse the current trend towards institutionalization. I know from personal experience that had home care insurance been available to my parents, they would have used every dime of it for home care services. No one wants to die in a nursing home. Adequate home care coverage keeps people out of nursing homes. This is why I recommend choosing a plan that covers 100% home and community care.
Home care typically covers the services of licensed nurses, aides and therapists. Some companies will cover certain activities of non-licensed providers and even your own children as providers as well. The options of what is covered and under what circumstances, vary so much from policy to policy that I could take up 5 pages of type trying to describe it. The only way to address this complicated but very important area of coverage is to go over each policy and compare it with the next.
Selecting a Benefit Period
For older buyers of LTC, the primary determinant of how long benefits should last is the size of their pocketbook. Most buy the benefit for what they can afford in premiums. Those with high incomes pay what they think is a reasonable premium. Still, this could be an outlay of $8,000 per year, just because they think the insurance is a better alternative than paying dollar for dollar out of pocket for care. Fortunately, the insurance cost for people under age 60 is more reasonable. For the case where it's more affordable, let's take an analytic approach to choosing benefit period.
Old data from studies conducted in 1990, and quoted in "A Shopper's Guide to Long Term Care Insurance" published by the NAIC (National Association of Insurance Commissioners), indicate that if a person spends at least 90 days in a nursing home he or she tend to stay on average 2.5 years. Insurance agents and carriers quote this number constantly and as a result the average industry-wide, recommended benefit period is 3 years. However, another study says that a person who has been in a nursing home for one year will, on average, be there 6.2 years. Shouldn't we recommend 6 years as well? But then maybe we should recommend a lifetime benefit. The cost is only about 15% more than a 6-year benefit. There are no clear answers.
Many people have the assets and a healthy spouse usually has the stamina to survive 1 to 2 years of long-term care. It's the long-term care that drags on forever that's devastating not only to assets but also to the wellbeing and health of loved ones. What advisors generally recommend is that if there's a chance that long-term care will last more than 5 years, you should buy the longest benefit period you can afford - but definitely 5 years as a minimum.
Elimination Period-It's a Lot More Complicated Than it Appears
Elimination is the time a person has to pay out-of-pocket for services before the insurance takes over. It's a waiting period to determine recovery or demise. The insurance company uses it to reduce the number of days it has to pay claims. For additional cost, you can buy a 0 day elimination but most agents offer a 90 day elimination.
What is difficult about elimination is that every company defines it differently. It appears that some companies have designed elimination as a way to avoid claims. Here are some of the differing definitions of an Elimination Period:
- Most policies define a day of elimination as meaning a day of care, but a few define elimination as a calendar day with no care required.
- Some policies (2 pool) have 2 mutually exclusive elimination periods. Both have to be met.
- Some policies only require a once-in-a-lifetime elimination, others require it for each new incident.
- Some policies, under certain conditions waive elimination for home care but require it to be met for facilities care, but some will allow waived days to count towards facility elimination.
- Some policies require elimination to be met in a certain calendar period, i.e.. 6 months, otherwise you start over.
- Some companies recognize that paid home care might only be for a few days a week and meeting a 90 day elimination could actually take 6 months or longer. These companies credit a certain minimum number of home care days (as an example 3 or more days a week) with a full 7 days of elimination credit, even though actual care days were less.
- At least one policy requires elimination to be consecutive days of care. If you didn't get care at least 7 days a week, you'd never get paid under that policy. The list goes on and on.
Is it a "Stated Period" Policy or a "Pool of Money"?
Probably one of the most widely promulgated falsehoods used by unknowing agents is that benefits from any particular policy always represent a guaranteed specified pool of money. Some policies are a pool of money and some are not. Many agents and most all of the buying public don't understand the significance of the concept or how it works.
The misconception probably occurs because all contracts, whether money pools or not, list a total dollar amount of benefit on the contract declaration page. For instance a $100 per day policy that pays 5 years would list a total benefit of $182,000 on the declaration page. ($100 X 365 days X 5 years) Now if the policy paid only $50 per day for home care-which is often the case--then the policy would pay 10 years instead of 5, right? ($50 X 365 days X 10 years = $182,000). Wrong! It would only pay longer if it were a pool of money. If the policy is a "stated period" policy then it will only pay for the specified period of years, whether you take out $100 per day or $20 dollars per day. You only get the full $182,500 if you take out the full $100 per day for 5 years. If you end up using 5 years of home care you only get $91,250 out of the policy before it expires.
Obviously a pool of money is superior to a stated period. A pool of money might let you stretch a 3 year benefit to 4, 6 or even 8 years if you didn't take out the maximum daily amount. A stated period policy has no stretch. So how do you know which is which? You will find it in the contract language somewhere in the body of the contract. Rarely do insurance carriers disclose the benefit type in their brochures. A pool of money uses language that refers to the maximum lifetime benefit amount. A stated period uses language that refers to benefits being paid for a period of time.
2-Pool Policies
Most comprehensive long-term care insurance policies--so-called integrated policies--cover all benefits from the same pool of money. You can pick and choose between home care, assisted living, nursing home, hospice or adult day care until the money or the stated period runs out. A 2-pool policy segregates benefits into 2 pools of stated benefit periods or sums of money. The 2-pool policy may be designed as an integrated policy but it may also arise from adding a home care rider to a stand-alone nursing home only policy. Or it may arise adding a nursing home rider to a home care policy. The cobbled together versions usually have 2 mutually exclusive elimination periods. The integrated 2-pool policy usually, but not always, has one elimination for both pools. These 2-pool policies are typically less expensive than single pool types. This is because you may not use all of the money in one of the pools thus saving the insurance company some money. One pool--as an example, 3 years of benefit--is for nursing homes and sometimes assisted living. The other pool--as an example, 2 years of benefit--is for home care, hospice, adult day care and usually assisted living; if it's not included in the nursing home pool. (It's confusing, but very important to know in which pool ALF is included. It usually pays more if it's in the nursing home pool.) This 5 years of total benefit is inferior to a 5 year integrated policy. As an example if you had to go to a nursing home and never used home care, you'd only get 3 years of benefit out of the 2-pool example above, but you'd get 5 years of nursing home benefit out of the integrated policy.
Cost Containment Provisions
More and more companies are including policy provisions to prevent what the companies fear might be unecessary claims. These provisions range from tightening qualification to rewarding claimants with extra features if they agree to care coordination services. In general, cost containment is mostly directed to home care services, an area where companies can exercise less control over services used. Below are some of the more common cost containment measures.
Tightening Qualification
Some carriers, even for qualified policies, require that certification for benefits be done by doctors, nurses or social workers under hire from the carrier. Apparently, they fear that just any certifier might be more liberal than their own employee.
In addition to the above, some policies require that a "plan of care" from a licensed party--the contract could specify a doctor, social worker, home health agency, company employee or not specify anyone--be submitted and approved by the insurance carrier before any claims are paid. Qualified plans require a plan of care under HIPAA language and Medicare or Medicaid also require care plans but there is no requirement for an insurance company to approve a plan for payment of benefits. Again it appears that some carriers are nervous about unecessary claims.
Care Coordination
A growing number of plans use "care coordination" as a way to prevent unecessary home care claims. I'm not aware of any studies that show care coordination results in the desired outcome, but I'm sure they exist. If you know of such studies let me know. Care coordination is a plan of care for community services written and submitted to the carrier by a licensed care provider, usually a home health agency. The provider may be in the employ of the insurance carrier or may be independent. Some carriers will allow plans from any licensed provider but will only pay for ones in their hire. Carriers who don't contract with care coordination agencies will, under the policy, pay for care coordination from any licensed provider. A care coordination plan will coordinate aide, therapist and nurse visits, free or low cost community programs, care commitment from family members and services paid by Medicare and Medicaid.
Some of the more restrictive insurance policies require care coordination before any benefits are paid. Some plans don't require care coordination. Other plans will pay for it but don't require it for benefits. Some policies will reward claimants by enhancing home health benefits if the claimant elects a care coordination plan. These policies use one or more of a combination of the following four enhancements:
- Home health care normally paid at 50%, 75% or 80% of nursing home care will be increased to 100% of nursing home care.
- Benefits normally paid as if they were incurred daily will be paid as if incurred weekly (some policies) or monthly (other policies). As an example, assume the policy paid up to $120 per day for eligible claims, but the beneficiary incurred a one-time claim of $250. Without care coordination enhancement, the insurance company would only pay $120 of the $250 claim. With enhancement the entire $250 would be paid.
- The eliminated period will be reduced or waived. For example a 90 day elimination for home care might be reduced to 20 days, 10 days or 0 days. Depending on the policy, the 90 day elimination may still be required for assisted living or nursing home.
- If the policy normally restricted care to that furnished by licensed home health agencies--this is a typical provision to avoid fraudulent claims--then with care coordination, non-licensed services, and with some policies, even children of the beneficiary will be paid.
Indemnity Claims Payment
One way to avoid the claims hassle is to choose a carrier that offers "indemnity" benefits. Let me explain. There are two ways to pay benefits under a long-term care policy--Claims-based, sometimes called expense-based, and indemnity-based. Claims-based or expense-based means that every expense must be submitted for reimbursement. Since a number of LTC related expenses are excluded under all policies, some claims may be denied. Also, the expense reimbursement method only pays up to expenses actually incurred-It may not pay the maximum allowable policy benefit. Under the indemnity-based method, once you qualify for benefits, you don't submit claims. The insurance company will send you or your representative a check once a month for the maximum allowable daily, weekly or monthly benefit in the policy. You can use the money to pay your costs and if any is left over, pay for items not covered under the policy, such as personal need items, diapers, medications, doctor visits, transportation, etc. Or you can stick the extra in the bank to pay future costs if the policy runs out.
With indemnity, you are more likely to receive the full benefit in the policy before you recover or die. Under both plans, you are, however, only reimbursed for the actual number of days you receive care. (At least 2 carriers pay indemnity whether you are receiving care or not) Both plans also require periodic proof that you're still eligible for benefits. Not all carriers offer indemnity. For those that do, it might be part of the policy provision or it might be a separate rider. Some carriers include indemnity for nursing home but not home care, and some include it for both as part of the policy provision or with a separate home care rider.
Additional Premium Discounts
True group policies don't offer additional discounts. Individual group usually offers a discount for group application as well as "good health" discounts. Many individual policies offer "good health" discounts of 10% to 15% for qualifying applicants. In addition, couples applying together on individual plans can get additional discounts of 10% to 30%. Discounts may offset each other and may vary from state to state depending on State rules.
In The Event One of The Couple Dies
Many people ask, "what happens to the premium and the couples discount if one spouse dies?". As with everything else about LTC insurance the answer is not that straightforward. If it's a shared single policy, the premium stays the same at death--a major disadvantage. Two shared policies result in a loss of the discount but may or may not transfer the remaining shared benefit to the survivor and may or may not reduce the survivors obligation of the original premium. Single-life, non-shared policies result in the survivor's premium reverting to a single-life policy without the couple discount. A single, non-shared policy on two or more lives reverts to the largest possible premium combination without the multiple discount, even though the person(s) paying the highest premium might be dead.
Spouse Survivorship
This is something like a death benefit for couples and is only available on some individual plans. Both spouses must buy coverage. If one spouse dies after coverage has been in effect for a certain number of years-usually 10 years-then the policy becomes paid-up for the survivor. No more premiums are due.
Shared Benefits
Some individual plans allow couples to transfer benefits to each other from the same policy or sometimes between policies. With some policies I have have found this to be a a cost effective and desirable benefit. With other policies it's cheaper to buy two separate 4 year policies as an example than to buy a shared 5 or 6 years.
Extended Family Coverage
All group plans allow family members and certain relatives of employees to buy the same coverage. Usually these people must submit to medical underwriting.
Shortened Pay Periods
Some plans allow policies to be paid-up with fewer premiums. This includes single premium plans, paid-up in 3,5,10 or 20 years and paid-up at age 65. Paid-up does not always mean the insurance company can't ask for more money after the paid-up period. Check your contract to see if this provision is guaranteed or not.
What Does That Strange Word Non-Forfeiture Mean?
This means you get some residual benefit if the policy lapses or you die before making claim. Some states require mandatory non-forfeiture on all policies. Non-forfeiture adds more cost to a policy. Benefits may include a lifetime maximum of claims equal to premiums paid or it may be a return of premiums at death. Because of new State regulations, insurers will soon have to add non-forfeiture at no cost to the insured if the carrier increases premiums by more than 30%. This rule is intended to encourage companies to price their policies more accurately.
Out-of-Country Coverage
Most policies only pay benefits if the claimant resides in the US or in some cases Canada. A few companies will pay partial or full benefits for a selected group of countries. A very few may pay regardless of where the beneficiary lives.
Death Benefit
Some group policies will return an insured's premiums if death occurs before age 65 or 70 and no claims were made.
Waiver of Premium
Waiver of premium is a standard provision of all policies; however, it shouldn't surprise you by now its application is hardly uniform from policy to policy. In general, this provision waives (stops) the payment of premium while benefits from the policy are being received. The simplest application waives premiums after a certain number of days after care began under the policy. This is usually 60 or 90 days. But a 60 day waiver might be longer because some waivers don't take effect until the first day of the month following the month in which the waiver period was met. Many policies only waive premiums with nursing home care and premiums continue with other care. Some of these policies allow for additional cost riders to provide a blanket waiver. A few policies will waive premiums after nursing care even if the person recovers. Single policies covering two lives usually waive premiums for both insureds. Some policies match the waiver to the elimination period. For example a 30 day elimination yields a 30 day waiver of premium, but it might also yield up to a 60 day waiver if the effective date rule above is used.
Additional Benefits
These are benefits such as caregiver training, security systems, respite care, bed reservation, restoration of benefits, prescription drugs, etc. They usually add little to the overall dollar payout of a policy but are used as sales features to attract buyers. These features are designed to make the policy appear more valuable much as fancy wheel covers, spoilers and extended service are used to attract buyers of automobiles. Or extra features may be added to differentiate one carrier's plan over it's competitors' plans.
I give these features little weight when I assess long-term care policies, yet from some of the literature I see from various companies, you would think the value of the purchase of a particular plan lives or dies on the quality and quantity of these features. Below are some of the more common additional benefits.
Restoration of Benefits
This provision is standard with some plans, it is unavailable on others and can be added as a rider on others. Check your plan for availability. ROB allows the insured to recapture or restore benefits used and put them back into the policy. The requirement is to be treatment-free (including medications) for 6 months before benefits can be restored. It applies only to nursing home care. The probability of actually restoring benefits is low (as evidenced by rider costs of only 3% or 4% of additional premium increase) because most nursing home stays longer than 90 days usually don't result in recovery. Even if the person is discharged, he or she is probably receiving treatment for the condition in the form of medications or doctor visits and thus would not qualify for ROB.
Respite Care
Respite care allows a caregiver who needs respite (rest) to put the insured person receiving care in a nursing home for a certain number of days a year without meeting the elimination period. Days of respite are usually 7 to 30 days depending on the policy. Some policies tie it to a dollar amount based on policy benefits. Once the elimination period has been met, this becomes a useless benefit, since any amount of nursing home care can then be used without invoking this provision.
Bed Reservation
This feature allows a nursing home bed to be paid for for 7 to 30 days (depending on the policy) if the care recipient has to go into a hospital but plans on returning. Without this feature the bed wouldn't be covered since the recipient wasn't receiving care in the facility. This only has value in areas or homes where demand for beds is high. In areas of low occupancy, there is no need to hold a bed.
Special Payments
Although often emphasized by agents and companies, I consider these features to be irrelevant to the design of a good policy. Most pay only $200 to $1000 total, but if they do pay over a period of time, total payout is usually capped. Most of these benefits are self descriptive and I won't take time to describe them. Special payments may be made for: prescriptions, caregiver training, home modification, alarms and alerts, remote monitoring, homemaker services, ambulance, transportation costs and many more care related expenses not mentioned or still germinating in the minds of aggressive marketing departments.
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