Long Term Care - Chapter 6

A. There are five questions to answer before purchasing long-term insurance.

• Seven percent of my annual income is approximately $_____.
(This is the maximum amount experts advise spending on a premium).
• The cash value of my non-housing assets is $_______.
• The total amount of my non-housing assets would last for ______ years if I needed care today. (This is the approximate number of years of coverage you might consider buying.)
• I can afford to pay $______ a day towards the coast of my own care. The difference between the amount I can pay and the cost of care today is $________ a day.
• I can afford to pay for the first _______ days of care in a nursing home. I will need an elimination period of no longer than 30 days, 60 days, 90 days or (other).

A. Long-term care encompasses a wide array of services; from part-time help for a person at home, to permanent residence in an assisted-living or nursing facility, or even round-the-clock skilled care in a special facility. Most long-term care is to assist people with support services.

A. Generally, the following conditions are not covered:

• Health problems diagnosed before purchasing the policy, unless issued with no pre-existing conditions clause;
• Mental and nervous disorders or diseases other than Alzheimer’s disease and related dementia (usually limited benefits, e.g., 2 years of coverage);
• Alcohol and drug addiction;
• Illnesses caused by and act of war;
• Illnesses resulting from intentional self-inflicted injury;
• Attempted suicide;
• Treatment already paid for by the government (such as Veterans Administration benefits).

A. Yes! When choosing a long-term care insurance policy benefits are tailored in consideration to an individuals needs.

A. Simplification, how much long-term care insurance is needed, what the value proposition of long-term care insurance is, will and how the policy will provide now and into the future.

A. Once the policy is drawn upon for the in-home service, the available months begin to be deducted and will impact the number of months that will be covered when nursing home care is required.

A. No. In some states the law says that the marital home is exempt from asset drawdown if the LTC police covers a two-year stay in a nursing home.

A. Using an “in-home” rider before applying to a nursing home may make the policyholder ineligible for the home protection clause to kick in, because there would no longer be two years of coverage for the nursing home.

A. The inability to perform, without substantial assistance from another individual, at least two of the following Activities of Daily Living (ADL’s): bathing, dressing, eating, toileting, transferring, and continence, or requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.

A. The most important service that a policy should cover is custodial, or personal care. A comprehensive policy covers all levels of care in all settings: facility care, community adult care, assisted-living facilities and skilled nursing facilities.

A. Yes, assisted-living is covered by some long-term care insurance plans.

A. In California and most other states, insurance agents and financial consultants selling long-term care insurance must be licensed by the State Department of Insurance. Yes, they must have special training and have completed a number of continuing education courses before they can renew their licenses.

A. No. There are three major kinds of long-term care insurance:

• Nursing home only.
• Home health care only.
Comprehensive plan (covers both nursing home and home health care).

A. Specifically, when deciding on the amount of insurance to purchase consideration should be given to the following four things:

• Benefit amount: the maximum fixed dollar amount of benefits available, either on a per-day or per-type-of-service basis.
• Inflation adjustment: the increases in the benefit amount to compensate for inflation; this continues to increase as long as you hold the policy.
• Benefit period: the length of time the policy will pay for covered services, usually ranging form two years to an unlimited period.
• Deductible period: the number of days that you pay for covered services before the policy begins paying benefits. The insurance industry recommends a deductible period of no more that 100 days.

A. With the average length of stay in a nursing home of two to two-and-a-half years, the benefit amount is generally more important to consider than the benefit period.

A. Usually. Policies differentiate between a skilled nursing facility and facility care and sometimes pay a different benefit amount for each. Many policies will offer equal benefit amounts or the option to choose a benefit amount.

A. All long-term care policies (like any other insurance policy) have some exclusions. The following conditions are not covered:

• Health problems diagnosed before purchasing the policy, unless issued with no pre-existing conditions clause.
• Mental and nervous disorders or diseases other than Alzheimer’s disease and related dementia (usually limited benefits, e.g., 2 years of coverage).
• Alcohol and drug addiction.
• Illnesses caused by an act of war.
• Illnesses resulting from intentional self-inflicted injury.
• Attempted suicide.
• Treatment already paid for by the government (such as Veterans Administration benefits).

A. The best kind of long-term care policy is one that is guaranteed renewable. This means that the company cannot cancel the policy for any reason unless you do not pay the premium.

A. Some policies provide continuation of the policy for those such individuals who may develop dementia and/or become unable to manage their affairs.

A. The premiums cannot increase with increased age or changing health of an individual policyholder. However, the company can raise the premiums for an entire class of people after review by the state insurance commissioner.

A. No. A living will and a durable power of attorney for health care (DPAHC) are not the same. A living will expresses your general wishes about critical-it does not authorize anyone to make decisions on your behalf.

A. A living will is interpreted by the doctors as a directive and does not handle the matter of “right to die” as efficiently and effectively as a DPAHC.

A. At the website www.uslivingwillregistry.com, you can get more information and also register for free.

A. The durable power of attorney for health care is the most important document you will have because it affects you and your life directly. A durable power of attorney for health care provides documentation you can count on to carry out your wishes and to emotionally and financially protect your loved ones in the event of a tragedy.

A. There are twenty-nine contract terms and definitions of an insurance policy, they are as follows:

• Accelerated Death Benefits
• Activities of Daily Living (ADL’s)
• Bed Reservation System:
• Benefit Triggers:
• Care Coordination:
• Cognitive Impairment:
• Deductible or Elimination Period:
• Dementia:
• Diagnostic-Related Group (DRG):
• Exclusion:
• Facility Care:
• Free-Look Period:
• Guaranteed Renewable:
• Indemnity Benefit:
• Inflation Protection:
• Lapse:
• Level Premiums:
• Outline of Coverage:
• Out-of-Pocket Payments or Costs:
• Per Diem Rates:
• Period of Confinement:
• Pre-existing Conditions:
• Prospective Payment System (PPS):
• Post Claims Underwriting:
• Restoration of Benefits:
• Return-of-Premium Rider:
• Severe Cognitive Impairment:
• Skilled-Nursing Facility (SNF):
• Unintentional Lapse of Policy
• Waiver of Premium:

• Does not require a stay in a hospital as a qualification for benefits to begin:
• Covers care at home as well as in an institution;
• Does not require home health care to be administered by a professional health care worker or by a certified home health care agency (if it does, benefits may not be paid);
• Covers custodial, or personal care as well as intermediate care;
• Covers adult day care;
• Does not exclude pre-existing conditions, or at least not for more than six months;
• Does not require payment of premiums (after the waiver period) once you begin to receive benefits until your health is restored and you are able to take care of yourself;
• Requires you to satisfy the elimination period only once no matter how many times you need to access your benefits;
• Does not increase premium levels unless it is for everyone who carries the same plan;
• Is guaranteed renewable (some states, including California, require all plans to be guaranteed renewable);
• Offers a grace period during which your policy continues if a premium is missed;
• Provides you an “Outline of Coverage” that summarizes important plan features;
• When comparing “Outlines of Coverage,” compares favorably with other plans you are considering;
• Qualifies as a tax-qualified, or non-tax-qualified, policy with a right to change between the two; • Allows you a “free look” period in which to review the policy;
• Pays your nursing home stay on an indemnity basis, not a reimbursement basis (if your benefit amount is $100 per day but the actual cost of the nursing home is $80 per day, you should still receive the entire $100);
• Has a feature called “restoration of benefits” if it does not include a lifetime benefit (if you recover and leave the nursing home and are not readmitted for at least 180 consecutive days your original benefit period will be restored).

A. Consult a professional advisor about any questions you have and to ensure that no misunderstandings arise be sure you:

• Keep the signed and dated receipt of the policy from the company or agent;
• Pay with a check written to the insurance company;
• Be candid and accurate about your medical history so no claims will be refused or policies cancelled;
• And take the time to choose the policy that is right for you.

A. Many long-term care insurance companies are developing cost-effective and innovative applications that include riders covering those particular options.

A. An insured should know that there are two broad types of benefit options; the “indemnity” policy and the “expense-incurred” policy.

• “True Indemnity” policy-with a true indemnity policy your insurer will pay a lump sum of funds upon the determination of the need for Long Term Care. This type of policy does not consider the type of needed services and who will provide them. The money is paid directly to the insured to be used by them to cover care expenses.
• Conditional Indemnity Policy-a conditional indemnity policy pays claims similar to the true indemnity policy, but it includes certain conditions which must be met, i.e. care must be provided by a licensed professional.
• “Expense-Incurred” policy-with the expense-incurred policy your insurer will determine if the impairment warrants services and if the providers of the service are eligible for reimbursement according to your policy. Going forward the insurer will pay directly to the care provider on a weekly or monthly basis for expenses incurred. These services will be reviewed by a representative of the insurer for appropriateness on a periodic basis.

A. When viewing a policy another consideration is whether or not the benefit being paid out will reflect inflation. There are three categories concerning inflation.

• No Inflation Factor: The first type of policy will not factor in inflation when it comes time to pay benefits. It pays a pre-determined benefit as stated on the policy purchase dated.
• Simple Inflation Factor: Another option would be to purchase a policy with inflation protection. In a simple inflation policy the original benefit is multiplied by the inflation factor, say 5% each year, giving you new daily benefit.
• Compound Inflation Factor: In a compound inflation policy, each year the amount derived from multiplying the percent of inflation is carried over to the next and multiplied again. This makes for a substantial difference in benefit, especially if the policy is purchased well before accessing the benefits.

A. The total amount of benefits received by a policyholder will be directly related to the premium level. Benefits are typically limited to a maximum amount per day and for a specific number of days, which create a pool of money when multiplied.

A. A typical policy might be defined as $150.00/day of nursing home care for 2 years. These two factors can be larger with a direct relation to a higher premium.

A. All policies will have an “Elimination Period,” which is the number of days that an insured will have to pay out of pocket for services prior to the insurer covering those expenses.

A. The “Elimination Period” will have a profound effect on your premiums. The shorter the elimination period the higher your premium will be. The determination that services are needed does not constitute the beginning of payment. Services will have to be needed, as defined in the policy, and received for the duration of the elimination period before coverage begins.

A. “Restoration of Benefits” is a payment option that can be opted for in order to keep your maximum benefit in tact if you should go into a nursing home and come out. If that stay in the nursing home incurs $10,000.00 in paid benefits, that amount is deducted from your total lifetime benefit. However, you may be able to restore the entire amount, if you have this feature and do not return to the nursing home for set amount of time.

A. “Premium Refund at Death” is a payment option that will return to your estate any unused portion of the paid premiums minus paid out benefits.

A. “Premium Refund at Death” is another payment option that must be stated in your policy.

A. As long as you are not receiving care you must continue to pay your premiums. However, certain types of policies will allow you to stop paying your premium if you are receiving care. This waiver of premium may, or may not, start upon entering the facility or after the elimination period.

A. Policies differ greatly regarding what will happen if you cannot continue to pay your premiums. You should inquire about this “Non-Forfeiture Benefits” clause prior to committing to a policy.

A. Yes, this “Non-Forfeiture Benefits” clause will increase your premiums, but may offer some comfort to you in the event that you are unable to continue. It is quite possible that even after an extended period of time of paying premiums, a lapse on your part will result in the cancellation of the policy without the refund of any paid monies.

A. There are many factors involved in the cost of a long-term care insurance policy. The daily benefit amount, elimination days, total policy benefit and other factors such as age and health will weigh in on the annual premium.

A. Pre-existing conditions do not necessarily exclude you from coverage and often there is simply a waiting period before receiving benefits.

A. All insurance companies have the power to raise rates if they do so for a class of policyholders in a given state with regulatory approval. Insurance carriers may not raise premiums for a given individual. Therefore, you should be sure that whatever premium you feel comfortable with now will still be within your means in several years.

A. A purchase like a long-term care policy is particularly difficult because in most cases it will be a one-time major purchase. It is essential to understand that the seller of this product will always be more knowledgeable about it than you. Consequently, education and comparative shopping will be your best safeguard for a sound buying decision. Make sure that you get quotes from several companies and that you compare.

A. Long-term care is a young industry when compared to automobile or even health insurance. Given the relative age of this industry it is not possible to predict with certainty the overall strength of insurers. With this in mind, it is paramount to note the financial rating and reserves of a prospective insurer. Don’t be afraid to ask and check the financial rating for each company you consider.

A. Following is a list of some of the prominent rating services for insurance companies:

• A.M. Best Company
• Duff & Phelps, Inc.
• Fitch Investors Service, Inc.
• Moody’s Investor Service
• Standard & Poor’s
• Weiss Research, Inc.

A. Yes, there are ways to reduce the cost. Following are five ways worth considering:

• Purchase a policy before your next birthday because costs increase-typically on your birthday. Wait until then and you’ll be paying more for the same coverage.
• Qualify for preferred rates because protection costs less when you’re younger and in good health, able to qualify for lower, preferred rates. Because your health could change at any time, waiting could be costly.
• Integrate with income for you’ll likely have some income to pay costs (Social Security, pension and savings). Decide how much you can pay for daily care and buy coverage to make up the difference.
• Rewards for sharing because a longer “Elimination Period”-the number of days before your benefit payments actually begin-will reduce your costs.
• Keep it simple because an inflation protection option will protect you as costs rise. At older ages (70’s+), selecting a “simple” annualized formula will save over one where increases compound.

A. Yes, there are alternatives, such as an investment in Income Properties. Certain Investment distributions can be forwarded to a money market account established to automatically pay long-term care insurance premiums.

A. When selecting a carrier for long-term care insurance the financial strength and stability are important, but also the depth of commitment to long-term care insurance, the quality of individual long-term care insurance products for the employer market, and the experience of the long-term care insurance claims professional are important guidelines.

A. True Group Long-Term Care is a contract between the insurer and the employer-with certificates of coverage for employees-“true group” coverage.

A. Features of True Group Long-Term Care include:

• Employer Contribution
• Targeted at long-term employees using waiting periods and/or vesting
• Plan offered to dependents, if it meets employers’ objectives
• Benefit design set by employer and may be changed
• Possibly self-funded or alternate financing
• Commissions always removed
• High participation expected, providing meaningful safety net
• Cost to Employer: $5 to $25 per employee per month

A. The costs charged by an insurer include risk charges and profit margin, as well as commissions. These costs can be avoided or reduced in a self-funded arrangement. In addition, man states are requiring insurers to use rates that can hold up under “moderately adverse” experience.

A. Employers could also choose to leave such margin in their rates, but could convert the additional funding to additional benefits if the adverse events do not emerge. Employers could, on the other hand, strip the margins out of their contributions, understanding that adjustments may need to be made in the future in the case of unfavorable experience.

A. Vesting and/or waiting period allow the employer to design the coverage to focus on long-term employees, making employer contribution for the coverage feasible. The cost to the targeted employees will go down and the result will be higher plan participation resulting in more widespread long-term care coverage for the most valuable employees.

A. No. The premiums for long-term care insurance are the same for both males and females in each age range even though probabilities of needing nursing home care are different.

57. Is it a characteristic of a revocable living trust and financial durable powers of attorney to contain such provisions which will address qualification for Medi-cal, provide for protection of assets against a state lien, allow for access to assets; access to income and/or division of trust assets if one spouse has a stroke, or has received a diagnosis of a dementia condition, or at the death of an ill spouse?

A. The typical revocable living trust and financial durable powers of attorney usually do not contain provisions, which address the issues: qualifications for Medi-cal, provide for protection of assets against a state lien, allow for access to assets; access to income and/or division of trust assets if one spouse has a stroke, or has received a diagnosis of a dementia condition or at the death of an ill spouse.

A. With Convenience Long-Term Care Plans the features are:

• No employer contribution
• Participation available to all employees immediately
• Plan is offered to spouses, parents, retirees, others to maximize insurance company prospecting
• Benefit design set by insure and immutable
• Always fully insured
• Commissions may be removed
• Participation typically 6% to 15%
• No cost to employer

A. Some life insurance policies include riders to offer a combined Death Benefit/Long-Term Care Acceleration rider.

A. Long-term care insurance can provide tax-free liquidity on a monthly basis to protect your monthly income in the event of an emergency.

A. Long-term care benefits are generally paid in one of two ways.

• An indemnity plan, which pays the benefit directly to the owner of the plan
• A reimbursement plan, which pays the benefit directly to the nursing home or agency providing care.

A. No. An indemnity plan can work inside a trust because the trust arranges to verify that the insured qualifies for the long-term care benefit. Whereas, a reimbursement plan will not work in a trust because the trust, which owns the policy submits bills for the insured long-term care to the insurance company. The insurance company pays the bill to the nursing home or care provider on the insured’s behalf.