Posted 5/31/05 Module 6: Private Long-Term Care Insurance: Features and Benefits

2 Features and Benefits Covered services Benefit amounts Inflation protection Nonforfeiture provisions Elimination period (deductible) Premium waiver Care coordination Other coverage options Policy procedures and other provisions Consumer protection features

3 Policy Improvements Newer policies greatly improved Cover wide range of non-institutional care options Sounder basis for paying benefits Help people find services Enhanced consumer protection features

4 Covered Services “Facility Care Only” or “Comprehensive” policy Comprehensive policy includes: – Nursing home – Assisted living – Home care – Adult day care – Respite care – Hospice care – Supportive services

5 Facility Care Licensed nursing home – Not limited to Medicare- or Medicaid-certified facility – Some policies include Christian Science or Continuing Care Retirement Community (CCRC) facilities Assisted living facility – Policy defines criteria associated with caregiving facility and may require licensure or certification if state has such requirement Alzheimer’s special care facility Hospice care facility

6 Home and Community Care Skilled nursing care Physical, speech, occupational, respiratory and other therapies Personal care (home health aide) Homemaker services (meal preparation, housekeeping) Hospice care Respite care Adult day health care

7 Supportive Services Can include some or all of the following: – Training for informal caregivers to assist with personal care – Equipment and devices – Home modification – Medical transportation – “Meals on Wheels”

8 Things to Consider How does the policy define covered services? Where can home care be provided? Who can provide home care? What benefits “support” family caregivers? How is an assisted living facility defined? – Understand that LTC insurance does not pay for “rent,” it pays for “care” Where can hospice and respite care be provided?

9 Daily Coverage Amounts Choose daily benefit amount for facility care Choose home care benefit amount – Can be specific dollar amount or a percent of the facility care amount (e.g., 50%, 75% or 100%) Some policies automatically set home care and assisted living facility benefit same as facility care Older policies may pay non-nursing home care at 50% of nursing home amount

10 Variations – Weekly or Monthly Benefit Amount Some policies have weekly or monthly maximums More flexibility to cover high expenses on days when no family care is available

11 Example Comparison of Policy A Daily Benefit and Policy B Weekly Benefit Scenario: – Leo needs 8 hours of home health care on Monday to Friday – It costs $80/day – On the weekend, he can get care from family Leo’s expenses are 5 x $80 = $400

12 Example (continued) Policy A Daily Benefit Policy A pays home care expenses up to $60/day Policy A pays Leo $300 for the week of care ($60 x 5 days) He has an additional $100 of expenses that the policy will not cover Policy B Weekly Benefit Policy B pays home care expenses up to weekly maximum of $420 ($60/day x 7 days/week) Policy B reimburses all of Leo’s costs of $400 because he has not reached his weekly maximum of $420

13 Daily Benefit Amount Choices Nursing home choices $50 - $350 per day Some states specify minimum amounts Other benefit amounts (e.g., home care or assisted living) can be the same or less than nursing home care Consumer preference and affordability are important factors in choosing Consider average costs in your area

14 Things to Consider Cost of care in your area Cost at specific facilities or providers Family or friends who might help with care Policy with weekly or monthly home care benefit Can be difficult to support 24-hour care needs at home Policy that covers less than the full cost of care to keep premium costs down

15 Lifetime Coverage Amounts Buyer selects lifetime maximum they prefer Most policies have a “pool of dollars” approach Some older policies count “days of care” Most policies have a single maximum for all covered services Some older policies have separate maximums for facility care vs. home care Some benefits may also have specific limits (e.g., home modification or caregiver training)

16 Pool of Dollars Maximum You decide how to use your benefits when you need care Can use all of it for home care or all for nursing home or any combination you prefer Pool of dollars approach lets you stretch how long benefits last

17 How the Pool of Dollars is Calculated Nursing home daily benefit x 365 days per year x number of years selected Examples: $100/day x 365 x 3 years = $109,500 $100/day x 365 x 5 years = $182,500

18 How Long Will Benefits Last? Depends on type, amount and frequency of care you receive Benefits last longer if you do not need care every day or if care costs less than the allowable benefit amount

19 Example Policy pays: – $100 per day nursing home care – $100 per day assisted living facility – $50 per day home care Lasts 3 years if receive all your care in nursing home every day at $100/day Lasts 3 years if receive all your care in assisted living facility every day at $100/day Lasts 6 years if receive all your care at home every day at $50/day

20 Lifetime/Unlimited Coverage Most policies offer “unlimited” or lifetime coverage option Benefits last as long as you need care No overall dollar limit, but daily limits still apply Many people like “lifetime coverage” since they cannot “run out” of benefits if they need care for a long time Costs more

21 Inflation Protection Important for benefits to keep pace with rising costs Nationally, LTC costs rising 4% per year All tax qualified LTC plans must offer inflation protection – Applicant must sign a statement rejecting it if he/she does not want it Group LTC policies do not have to offer each applicant inflation protection Partnership policies automatically include inflation protection

22 Types of Inflation Protection Compound annual increases, with level- funded premium* Simple annual increases, with level-funded premium* Periodic buy-up (future purchase option or guaranteed purchase option) *Level-funded premium means premium does not change even though coverage amounts increase each year for inflation.

23 Compound Inflation Protection Costs the most initially, but provides best hedge against inflation Can be more affordable in the long-run Policies offer 5% annual coverage increase Some offer choice of other amounts Increases usually continue for life of the policy Some policies have a less costly inflation protection option where the inflation increases end after 20 years or when benefits double All coverage amounts increase

24 Example: Compound Inflation YearDaily BenefitLifetime Maximum* 1 $130 $142,350 5 $158 $173, $202 $221, $258 $282, $329 $360,255 Rule of Thumb: benefits almost double every 15 years *Assumes no benefits have been paid out

25 Simple Inflation Protection Similar to compound, except increase is the same each year – flat dollar amount 5% simply means 5% of the original benefit amount Benefits increase but premium does not change as a result

26 Simple Inflation Protection (continued) Continues for life of the policy (even while receiving benefits) Costs less than compound because benefits increase more slowly In the long-run, does not keep pace with inflation as well as compound inflation protection

27 Example: Simple Inflation YearDaily BenefitLifetime Maximum* 1 $130 $142,350 5 $156 $178, $188 $205, $221 $241, $253 $277,035 *Assumes no benefits have been paid out

28 Comparison – Daily Benefits Compound Inflation Year 1 = $130 Year 5 = $158 Year 10 = $202 Year 15 = $258 Year 20 = $329 Simple Inflation Year 1 = $130 Year 5 = $156 Year 10 = $188 Year 15 = $221 Year 20 = $253

29 Future Purchase Option (FPO) More typical in employer group plans than individual LTC Some policies offer a choice of compound inflation vs. simple inflation vs. FPO Able to buy additional coverage amounts every few years, without evidence of good health

30 How FPO Works Can buy additional benefits every 2 or 3 years Premium for the additional coverage is based on your age at the time you accept the added benefits Additional amount may be based on consumer price index (CPI) or 5% annual increase from the last offer

31 How FPO Works (continued) Offers may continue while you receive benefits, but usually they end once you go on claim You can usually “skip” some of the offers and still take others Offers may also end if you decline two of them

32 How to Choose Inflation Protection Automatic Inflation Protection Future Purchase Option How much will coverage increase? 5% per year compounded The amount care costs have increased since the previous upgrade offer How often will coverage increase? Yearly, automatic increases May be yearly, but might be every 2 or 3 years Do premiums increase as coverage increases? NoYes When will coverage increases end? Continues for the life of the coverage When you start to receive benefits, or after declining two upgrade offers

33 Things to Consider Do not just ignore the issue Compare how the inflation choices work and what they cost Younger people are more likely to want compound inflation protection Older people may consider less expensive inflation approaches Important to be aware of the “pros” and “cons” of each option

34 Nonforfeiture Option (NFO) Optional benefit available for an additional premium Tax qualified plans must offer NFO Group policies can offer NFO to the sponsoring group (e.g., employer) Individual policies have to offer NFO to each applicant

35 Nonforfeiture Option (continued) Provides continuation of coverage, on limited basis, if you stop paying premiums and let coverage lapse Most provide coverage equal to greater of 30 x daily benefit amount or 100% of premiums paid at the time of lapse

36 Contingent Nonforfeiture Included at no charge in newer policies Provides coverage on limited basis if you drop coverage due to a “substantial rate increase” you decide you cannot afford Policy defines “substantial increase” based on age Provides coverage equal to 30 times the daily benefit amount or 100% of premiums paid to date (whichever is more)

37 Things to Consider How much does NFO add to premium? Does policy have contingent nonforfeiture? How much coverage do these provide? – Coverage amounts are pretty limited (about one month’s worth of care) – May help with “transition care” but limited Does policy have other protections like the right to decrease coverage anytime?

38 Elimination Period (Deductible) Like a deductible for other insurance Usually satisfied in “days” not “dollars” like your auto deductible Helps keep premiums affordable Completed before benefits begin Policies give choice – Options include specific amounts from 0 to 365 days

39 Elimination Period (continued) Number of days before benefits begin Usually days do not have to be consecutive Deductible may be “once per lifetime” or “per episode” Most people choose 0 day, 60 day, or 90 day Many policies do not apply the deductible period to respite or hospice care

40 Service Day vs. Calendar Day Service Day – counts any day on which you receive a covered service Calendar Day – counts any day on which you are disabled (need help with ADLs or have cognitive loss) even if you do not receive any paid service or care May have little or no out-of-pocket expenses with “calendar day” approach Some out-of-pocket expenses with “service day” approach but amount hard to predict

41 “Extra Credit” Some “service day” policies give “extra credit” – you get credit for all 7 days of that week if you receive services any one or two days of that week “Extra credit” approach helps you meet the deductible quicker and with less expense

42 Expenses During the Deductible Expense you can plan for, but difficult to predict amount Out-of-pocket expense depends on many factors Might only spend $40/day on home health aide (90 days x $40 = $3,600) Or might need nursing home care at $100/day (90 days x $100 = $9,000) Medicare or other insurance might pay some of these expenses, but only if all the conditions for payment are met

43 Things to Consider Longer deductible provides premium savings How do you feel about paying some initial costs of care on your own? Does having a longer deductible allow you to afford more coverage on some other important feature? What amount of initial expense can you afford? How “easy” is it to satisfy the deductible? What services do not require a deductible be met?

44 Premium Waiver Typically do not pay premiums while receiving benefits Newer policies have premium waiver for both nursing home and home care Usually automatically included in newer policies

45 Premium Waiver (continued) Older policies (and some new ones) offer premium waiver as an optional rider for an additional premium Policy usually refunds or credits premium if you paid in advance (e.g., annually) and then need benefits before the next premium is due (“unearned premium”)

46 Care Coordination Important newer feature of LTC policies Helps identify care needs and how best to meet them Trained “Care Advisor” assess physical, social, cognitive, and medical needs Develops and suggests “Plan of Care” with an “outline” of care needs and suggestions for services and providers Arrange for services if you want Monitors needs on on-going basis Helps get the most out of your coverage

47 Approaches Vary Approach 1: Policy pays for and provides Care Coordination through designated “network” of nurses and social workers – Expenses do not reduce your lifetime maximum Approach 2: Policy pays for Care Coordination you obtain on your own – Expenses reduce lifetime maximum and limit how much Care Coordination is covered Can be “in-person” or “telephonic” or both

48 Plan of Care Developed with you and your family Represents your needs and preferences Usually provides option for care at home, even if facility care is appropriate Not put into place unless you agree Modified as your needs change

49 Other Typical Coverage Features Bed Reservation – Applies to all facility care (per stay or per year) – Just for hospital stay or other reasons Caregiver Training – Usually lifetime limit Informal Caregiver Benefits – Approaches vary greatly – Usually limited by daily and lifetime amount

50 Other Typical Coverage Features (continued) International Coverage – Usually short-term, transitional for temporary care Alternate Plan of Care – Helps coverage stay flexible for changing LTC environment – Approaches vary – Will not allow home care benefits for a Facility Care Only Policy

51 Other Coverage Options (Additional Premium Charge) Return of Premium on Death Benefit – Full return less common and costs more – Declining return which ends at age 75 is more typical and costs less Restoration of Benefits – Restores full lifetime maximum if you go 180 days without needing or receiving LTC – Fairly illusory benefit

52 Other Coverage Options (continued) Dual premium waiver – If both have coverage for 5-10 years, waive premiums for both when anyone receives benefits Surviving spouse premium waiver – If both have coverage for 5-10 years, surviving spouse does not pay any more premium if other spouse dies Spouse/Shared Care – Approach 1: Share a single “benefit pool” – Approach 2: Each spouse has own benefit pool and they also have an extra “benefit pool” which they can share

53 Consumer Protections* Guaranteed renewable Free look period (“right to review”) Third-party designee Grace period Added protection against lapse Continuation/conversion for group policy Appeals/reconsideration Limited right to change premiums Right to increase coverage/acquire new benefits Right to decrease coverage *See Glossary