Deep Dive into Traditional Long Term Care
Let's explore the features of a standalone long term care insurance contract, which also apply (mostly) to combo and worksite long term care plans. It is important to be familiar with all of the benefits, limitations and exclusions of these policies, as well as the purpose of optional riders that can be added to enhance the basic contract.
The vast majority of policies sold today are “comprehensive”, by which we mean coverage for care received in a nursing facility, assisted living, or in one’s home. No matter where care is received, the benefit is paid from the same “pool of money”
The following are an assortment of settings where extended care may be provided; in each location the level of skill may vary from low to high. Please note that policies cannot stipulate one type of care as a pre-requisite for another (e.g., requiring a nursing home stay as a pre-requisite for home care coverage). Second, they cannot require a higher level of care as a pre-requisite for coverage of a lower level of care (e.g., requiring skilled care as a pre-requisite for custodial care coverage).
This is the most serious medical situation, in which a patient is monitored at all times. A person may be placed in intensive care following surgery and then monitored for any negative signs, usually on a twenty-four hour basis. A hospital is the most common facility for this type of care.
Individuals who are no longer on the critical list and do not need twenty-four hour care may still need to be monitored periodically in a hospital-type setting. In a twenty-four hour period, medical personnel may spend up to eight hours with a patient.
The preceding services are typically short-term and covered by health insurance or Medicare, but not long term care insurance. On the other hand, should a nursing facility claimant take a sudden turn for the worse and need to visit the hospital for an acute condition and recovery, the policy’s “bed reservation” benefit would continue to pay the nursing home’s daily rate until the claimant returned so the room would not be forfeited. As you may know, any kind of transition (even down the hall) can be unnecessarily traumatic.
Skilled care is intended for people who have uncontrolled, unstable, or chronic conditions that require intensive care or for people who are recovering from a condition that initially required hospitalization. This type of care can be administered in the home, an assisted living facility, nursing home, or hospital and, like the name suggests, is provided by professionals with advanced education such as RN’s, LPN’s, LVN’s, Physical Therapists, Occupational Therapists, or Speech Language Pathologists.
This type of care is similar to skilled care, except it is provided on a periodic basis. It is designed for people with chronic conditions who cannot live independently, and it stresses rehabilitation that enables individuals to either return home or regain and retain as many ADLs as possible. Changing a bandage every eight hours, for example, is considered intermittent treatment. Skilled medical personnel deliver or monitor this type of care.
This care involves assisting individuals with ADLs, which include, but are not limited to, bathing, dressing, eating, toileting, and walking. This is the most common type of care received, and can be provided by anyone from a Certified Nurse’s Assistant (CNA), to an informal caregiver such as a neighbor or family member. Between 70 and 80 percent of paid long term care in the United States is provided by direct care workers, for example home health aides, CNA’s and personal care aides, a workforce of 4 million.
It is helpful to think of “sub” acute care as “post” acute: post-surgery or rehabilitative care that often takes place for a short period of time in a skilled nursing facility. Although Medicare may reimburse for this type of care, surveys are often uncomfortable labeling it “long term care” for obvious reasons. It may include extensive physiological monitoring, intravenous therapy, post-operative care, intensive rehabilitation, or other medically complex interventions.
On the other hand, the objective of most long term care is not the restoration of a person to pre-accident or pre-illness health, but the prevention of further deterioration. This “maintenance” care has not traditionally been covered by Medicare, nor by comprehensive major medical insurance to any degree.
Alternate Plan of Care
The settings in which long term care services are delivered are also defined within a long term care insurance policy. These provisions define where the insured may receive this care. Long term care insurance policies have long hedged their bets regarding such services—in a good way.
Because the long term care provider industry, like the insurance product that covers it, is still evolving, long term care policies typically include a clause called an alternate plan of care. This is a catch-all feature intended to broadly cover services that are not specifically named in a contract, including those that have not yet been invented in this technology-driven age, such as robotics and telemedicine. Since these contracts are designed to remain current for ten, twenty or thirty years into the future, APC is a vital way of ensuring flexibility and modernity.
Having said that, care must be taken when communicating this feature. The Alternate Plan of Care requires the mutual consent of the insured, the insured’s doctor and the insurance company. Depending on the particular contract, a nursing home confinement must otherwise be required (in other words, the Alternate Plan of Care is contemplated to keep the insured out of the nursing facility). For instance, an insurance company might see the value of paying $30,000 for home modifications (wheelchair ramps, widening doorways, grab bars) to keep an insured at home versus a much more pricey nursing home confinement. The advocacy of an agent in these circumstances cannot be overstated.
Today, the following settings are specifically named in a long term care insurance contract:
- Nursing facility care: Most consumers still associate long term care insurance with nursing home coverage, which is a shame since the majority of long term care is now received at home. In fact, the very presence of LTC insurance may be what allows policyholders to stay out of a nursing facility (which is why we sometimes call it “anti-nursing-home” insurance). Generally, skilled facilities cover people in short-term recovery from a hospital stay or those who need around-the-clock skilled care (and who may be near the end of life). Still, it is an important part of long term care insurance coverage because it can be the most expensive, and the need for third-party financial assistance is probably greater. Family caregivers often reach the point where they can no longer handle the insured patient, and the movement to a facility triggers the act of claiming long term care insurance policy benefits.
The cost of this care locally is an important number, because it is the most expensive method of delivering long term care services (short of 24/7 home care), if these costs are used to determine benefit level at the beginning of the insurance process, this amount will likely be more than sufficient to handle other, less expensive covered services.
- ALF care: Assisted living is “a congregate residential setting that provides or coordinates personal services, 24-hour supervision and assistance (scheduled and unscheduled), activities, and health related services.”In some states these facilities are licensed, and in some they are not. We see a variety of names, from Adult Congregate Care to Residential Care Facilities (in CA). The most important point is to follow the policy definition, which will usually dispense with names and instead list a set of criteria. In other words, “If it walks like a duck and quacks like a duck, it’s a duck.”
More and more people in need of care are turning to such places for assistance for two primary reasons: price and comfort. ALFs are about half the cost of a skilled nursing facility, and until one requires more intensive skilled care, these more “homey” abodes are attractive to people who need assistance with ADLs.
Something of a Holy Grail, care at home has become the overwhelming favorite of people who receive long term care services. And why not? Few people prefer a facility to their home, and medical technology has made it possible to bring most equipment and support into the house. In 2011, about 4,742,500 patients received services from home health agencies, and 1,244,500 patients received services from hospices.
When considering long term care coverage, it’s important to take into account your prospective living arrangements. Of course everyone wants to stay at home, but will there be a supportive network of family, friends of neighbors to help make this possible? People living alone are more likely to face institutionalization, simply because they are unable to easily bring in a caregiver for assistance. A spouse, partner or sibling makes the home a likely destination. The transition to home care is much easier when there is someone present to help with the basics.
Physicians often recommend home care because it provides an important foundation for the emotional well-being of the person in need of care. According to the The Sandwich Generation Web site, long term care in the home is commonly associated with the following positive factors:
- Control of one’s lifestyle, including designated times for daily activities and social life
- Being within one’s own environment
- Emotional and physical security
- Privacy and maintenance of one’s own space
- Memories, magnified by personal history
- Being the source of financial security
- Extension of one’s self-expression
HHC services may come from a multitude of sources: professional agencies which are part of large national chains, independent, or affiliated with a nursing home or hospital. Most policies accept individuals operating independently (if they are licensed and acting within that scope). Still others accept and will reimburse “informal” caregivers, which refers to unlicensed, untrained and/or uncertified caregivers such as family, neighbors or friends.
This last point is worth discussion, since most care in the US is provided by family. Of all the benefits to review when designing a long term care insurance policy, few are more important than home health care. Why? Home is where you want to stay. A policy without strong HHC benefits doesn’t do much good. According to one company’s internal statistics, over 70 percent of claims originate in the home, and 77 percent of claims never transition from their original site.
Depending on the contract, some insurers will reimburse informal caregivers with limitation. These may include pre-approval, or use of Care Coordination, or limitation on certain kinds of care services (e.g., help with ADL’s and IADL’s), or only after undergoing training. It’s worth noting that most policies do provide a small benefit for Caregiver Training. Policies which provide a Cash Benefit (or Cash Alternative) obviously permit informal caregivers—remember that when cash is paid, the company is writing a check with no strings attached. The policyholder receives the money and is not told how to spend it.
Study the home care clause in the policy carefully, because it is likely that this portion of the policy will be used first and foremost.
Adult Day Care
A dependent adult in a day care center is supervised, fed, administered medication, and, in some cases, receives skilled care. Adult day care is not designed to replace the nursing home environment, where a significant amount of skilled care is required. But it is a perfect place for an adult who cannot stay home alone unsupervised throughout the day.
Normally, adult day care is used to relieve the caregiver of duties for the day while ensuring that the care recipient will receive the proper care in a safe, friendly environment. These centers usually operate during normal business hours five days a week, and some centers also offer services on evenings and weekends.
In general, there are three main types of adult day care centers: those that focus primarily on social interaction, those that provide medical care, and those dedicated to Alzheimer’s care. Many of these facilities are affiliated with other organizations, including home care agencies, skilled nursing facilities, medical centers, or other senior service providers.
Generally, care recipients can benefit from adult day care because:
- it allows them to remain in their community while caregivers work;
- it gives them a break from the caregiver;
- it provides needed social interaction; and
- it provides greater structure for daily activities.
Adult day care facilities can provide a variety of services and activities, including:
- assistance with eating, taking medicines, toileting, and/or walking;
- educational programs or mental stimulation;
- exercise programs;
- health monitoring (e.g., blood pressure, food, or liquid intake)
- podiatry care;
- preparation of meals and snacks;
- social activities;
- therapy (occupational, physical, speech, etc.); and transportation services.
This is a service whereby temporary professional care is employed to give the primary informal caregiver time off. With so many adults today providing care for a dependent parent or relative, the need for a break (i.e., “respite”) can be as often as once a week to run errands or perhaps to take a vacation. Long term care insurance policies generally reimburse a specified number of days annually for caregivers in need of this break in the caregiving routine.
Also a standard part of long term care contracts and often considered part of the comprehensive scope of services covered is hospice care (palliative treatment for the terminally ill). Hospice can be provided in the home or at a specific facility.
Additional Individual Long Term Care Policy Features
Long term care policies must be guaranteed renewable. This means that, once a policy is issued, the insurance company can not single any policyholder out for a rate increase because the policyholder filed a claim, grew older, or got sick. (Insurers occasionally improve their contracts and often send amendments to this effect to policyholders. Improving coverage is fine; but insurers cannot change policy language for the worse—an important consumer protection.) As long as the premiums are paid on time, the insurance company must renew the policy.
Contingent nonforfeiture (CNF) acts as a lever to limit the cumulative amount of rate increases imposed by insurers. It was adopted by the great majority of states, and insurers have made it a standard part of policies today.
As part of this provision, each long term care insurance policy comes with a standardized, age-driven table based on the age of the insured at issue. In this table, each age is associated with a percentage at which CNF is triggered. For example, a long-term care insurance policy issued to a sixty-three year-old would have CNF triggered at fifty-eight percent (the cumulative amount of rate increases allowed in relation to the initial premium, for the life of the policy). If the insurer exceeds that fifty-eight percent at any time, the policyholder must be offered a paid-up policy as an alternative to paying the increase. (The paid-up policy is typically comprised of a pool of money determined by the net amount of premiums paid, less any claims paid.)
Waiver of Premium
A standard part of any disability-based policy, waiver of premium generally is initiated when the insured begins to receive long term care benefits under the policy, or after a designated period of time. It is often part of long term care insurance policies because it makes sense not to require the financial burden associated with paying premiums when there are more important bills to pay during this time of crisis. Premium payments are expected to resume after (and if) the policyholder recovers and is no longer receiving long term care services.
The waiver of premium can be converted into a joint waiver of premium if both spouses are insured and this option is elected.
Care Coordination / Case Management
Those who think LTC insurance is all about protecting assets are missing the point. Millionaires have plenty of assets, but even they make poor decisions under crisis. What LTC insurance provides is access to a phone number that the general public doesn’t have: access to “concierge care”. Instead of flipping through the yellow pages and fending for yourself, the insurance company will assign you a Care Coordinator (sometimes in-house, sometimes from a 3rd-party vendor) to conduct an assessment of your care needs, help design a plan of care, and help locate providers in your area. Some Care Coordinators include access to provider quality ratings and reports, and provider discounts (stretching your claim dollar further); still others “unlock” additional policy benefits if you use their voluntary services. The use of Care Coordination is almost always voluntary and almost never comes out of your policy benefits—the insurance company likes to see you use this service to make sure your care is appropriate—not too much and not too little.
For some companies the Care Advisor is the point person for contact and communication during a claim. This individual has abundant information on various providers of long term care services, which is convenient for the family who will be making care decisions on behalf of the insured. Explanations of the contractual benefits and how best to maximize them is only part of what this coordinator can do.
Generally, a long term care insurance policy is payable if care is received within the fifty states, the District of Columbia, the U.S. territories, and sometimes in Canada. Most policies also have an international coverage clause that spells out benefit particulars if the insured is receiving long term care services in another country. There may be a daily benefit limit, a benefit period limit, or a change in the elimination period. There could be a cap on the total amount of benefits paid while receiving care in another country, or certain benefits which are explicitly not paid outside the US. Because increasing numbers of Baby Boomers either travel abroad or are considering retiring overseas, questions about international benefits have increased. Remember: these are transitional benefits, geared toward policyholders who suffer an accident or illness while travelling and cannot immediatley return home. Still, some are more robust than others, so it’s worth reviewing the long term care insurance policies you are selling to see how long term care insurance benefits are handled in this circumstance.
Although the ninety day elimination period is far and away the most popular selection sold today, a rider called “Zero Day Elimination for Home Care” can be very beneficial. (Some products include this as a built-in feature.) This way, although the insured must wait ninety days before benefits are paid for facility care, first-day coverage is received for care at home.
What’s more, each day care is received generally counts against (i.e. offsets) the days needed to satisfy the ninety day facility elimination period. Whenever this rider is available we think it should be considered. The fact is, at the time of sale many applicants are eager to keep the cost down, so they “nip and tuck” at the edges of their policies. One of the most obvious ways to lower the price is by taking a long elimination period: ninety days.
Unfortunately, what many people don’t realize who haven’t experienced the back-end is what happens at claim time. With thousands and thousands of policyholders on the books for decades, we have. When the family calls, no one remembers the parent’s decision to cut corners—they want their money—now. Do you think the policyholder or family is eager to wait three months? Of course not.
“Zero Day Elimination for Home Care” is a good compromise, especially since most claims are opened in one’s residence (and rarely transition to another setting).
This contract provision can be very useful. If the insured is in a facility, on claim, and requires hospitalization (or departure from the facility for any reason other than discharge), this feature pays to hold her room until her return. Over the course of a multi-year stay, situations like this are likely to occur. Just like you, once you’ve grown attached to your living quarters, apartment or room, moving is upsetting. We had a client who used this feature to take a two week vacation to visit her daughter, which she was desperate to do.
Home Modification and Equipment
Distinct from the Alternate Plan of Care, many long term care insurance policies today will contain a flat amount of extra coverage reserved for a variety of products and services to keep the policyholder at home. Items that can be reimbursed include any necessary alterations to the home such as grab bars for showers, wider doorways and wheelchair ramps, and the lowering of electric switches. This feature might also include money for the purchase and set up of needed therapeutic devices (such as a hospital bed) or rental of a monthly medical alert system.
Exclusions & Limitations
The NAIC Model Act contains a list of standard permissible exclusions from which product designers and actuaries choose when developing new products. In any review of policies, you will find the same list re-occur again and again. Some carriers may include as few as three or four, while others may include the entire allowable list:
- Pre-existing conditions
- Mental or nervous disorders; note, Alzheimer’s Disease is explicitly covered
- Alcoholism and drug addiction
- Illness, treatment or medical condition arising out of:Treatment in a government facility; services for which benefits are payable under Medicare or other governmental program (except Medicaid); any state or federal worker’s compensation program; employer’s liability or occupational disease law; or any motor vehicle no-fault law.
- War or act of war (whether declared or undeclared)
- Participation in a felony, riot or insurrection
- Service in the armed forces or auxiliary thereto
- Suicide (sane or insane); attempted suice, or intentionally self-inflicted injury
- Services provided by a member of the insured’s immediate family; and services for which no charge is normally made in the absence of insurance.
- Expenses for services or items available or paid under another long term care insurance or health insurance policy.
- In the case of a qualified long term care insurance contract, expenses for services or items to the extent that the expenses are reimbursable under Title XVIII of the Social Security Act or would be so reimbursable but for the application of a deductible or coinsurance amount.
- Coverage provided outside the United States. [Read your policy carefully on this one—there’s a lot of variation out there.]
Individual long term care insurance comes with multiple optional benefits that can be added based on your needs and interests. This enables you to tailor a plan specifically for you.
The following is a brief review of the more common optional riders available in the long term care insurance market today.
Married couples (including domestic partners and those in a civil union) applying together can generally add optional riders that are not relevant to single individuals. Three primary options are available.
The joint waiver of premium rider activates the waiver-of-premium provision for both policies when one partner becomes eligible for policy benefits. This rider is inexpensive and should be included in any proposal for cases involving either a spouse or domestic partner.
The survivor waiver of premium rider (also simply called “survivorship”) creates a paid-up policy after both policies have been in force for a specified number of years (almost always ten) and one of the partners dies. In such cases, the survivor’s policy would be paid-up in full if it meets the years-in-force requirement. If not, the survivor will continue to pay premiums until the years-in-force time period has been reached, and the policy will then be designated as paid in full. The classic selling scenario for this rider has always been age-mismatched clients (eg stereotypical older man with a younger wife): should he pre-decease her, her policy would be paid-up in ten years. (Unfortunately, a few carriers have suspended sales of this rider just in the last few years.)
Finally, there is the most popular of all, the shared care rider (consistenly purchased by about 40 percent of couples who both buy a limited benefit period). Although it comes in a variety of designs, the concept is simple: couples can share each other’s benefits. One partner is allowed to use the other’s policy benefits if the first policy is exhausted. This is an efficient planning tool for couples who are trying to stay within a premium budget. Rather than opt for the more costly lifetime benefit period (which has all but disappeared anyhow), the couples elect, for example, a five-year benefit period each. This gives either partner the chance for a ten year benefit. Should one partner die, the survivor inherits the spouse’s remaining benefits, and can drop the rider (for a little bit of premium savings just when it’s needed).
Other “shared care” designs make use of a third pool (to ensure that neither partner is ever left wanting); others require that each spouse retain a minimum amount of coverage for their own use; still others guarantee to replenish a “tapped” pool.
All three elections are effective planning possibilities and should always be reviewed with your agent.
Restoration of Benefits
The smaller the benefit period elected, the more consideration should be given to the restoration of benefits rider. If the policyholder files a claim and uses less than the full amount of benefits under the policy, then recovers and goes treatment-free for six months, the policy benefits are fully restored to the beginning amount at the time of claim.
This is not a high-cost rider, because the instance of use is not supposed to be frequent; a long term care claimant is rarely in a position to recover (e.g., Parkinsons? Alzheimer’s?). However, we have seen it used a few times: once after recovery from an auto accident and once after rehabilitation following a broken hip. Each time, the claim lasted a little more than a year, and then there was a full, treatment-free recovery. Benefits were restored after six months. That’s the idea behind this rider: an accident or surgery might occur early in your sixties… then twenty years elapse before something truly catastrophic hits in your eighties or nineties.
Because many benefit periods purchased today are short—two, three, or four years—this feature can provide peace of mind that the policy can be used more than once.
Shortened Benefit Period Nonforfeiture
We’ve discussed the mandatory contingent nonforfeiture benefit. You will recall that this feature allows the insured to elect a paid-up policy option should premium rate increases cumulatively surpass a stated percentage based on age at policy issue. There is also something called the shortened benefit period (SBP) nonforfeiture rider: although it is optional on the part of the policyholder, HIPAA mandates that it be offered as part of every sale.
For an additional premium, it allows the policyholder to lapse her policy after it’s been inforce for three straight years and receive a paid-up policy whose benefit pool consists of the greater of all premiums paid, or thirty times the daily benefit in effect when lapsed.
Return of Premium
In its most common form, when a policyholder dies all premiums paid (less any which were waived) are returned to the policyholder's estate. Some carriers include as a built-in benefit (or sell by rider) a version that applies “return of premium” only if the insured dies by age 65, or 67.
Most riders also deduct the amount of any claims paid from the eligible premium that’s returned; a few do not. The additional premium for this option can be significant and one must weigh whether it’s a better use of money to pay for this feature or invest those dollars in another financial vehicle. At any rate, the ROP rider answers the common refrain, "What if I never use it?"