1. Financial/Insurance Products to Fund the Costs of Long-Term Care

2. Ways to Finance Long-Term Care
EXISTING
Financial Transactions
Insurance Products
OTHER CONCEPTUAL TOOLS
Savings Accounts (similar to MSAs/HSAs)

3. Financial Transactions
Sales of Assets
Reverse Mortgages on Real Property
Viatical Settlements on
Existing Life Insurance Policies

4. Sales of Assets
Those with assets may sell them to finance the cost of care
Selling assets that are no longer needed
Investments
Non-residential real estate
Collections
Unused automobiles, boats or other vehicles
Pro: Draws on available resource when care is needed
Con: Assets are no longer available

5. Reverse Mortgages on Real Property
Those owning houses or condominiums may consider tapping into value of property
Selling property that is no longer needed
Entering into reverse mortgages with finance company
Steady stream of payments for number of years
Transfer of property to finance company at death of insured or end of payment period
Pro: Draws on available resource when care is needed
Con: Takes away home even before person no longer needs it

6. Viatical Settlements on Existing Life Insurance Policies
Those with life insurance policies may enter into contracts with a viatical settlement company – called a “viator” – making the viator the beneficiary in return for a cash payment
Person selling policy must meet viator’s eligibility standards – either terminally or chronically ill
Person selling a policy receives financial settlement
Viator receives proceeds of life insurance when person dies
Viatical settlement companies and viatical settlements are regulated by the Division of Insurance
Pro: Draws on available resource when care is needed
Con: Prevents death benefit from going to other beneficiary

7. Insurance Products Life Insurance Policies Annuity Contracts
Cash Values
Accelerated Death Riders
Long-Term Care Riders
Annuity Contracts
Regular Annuity Payments
Long-Term Care Policies

8. Life Insurance
Certain life insurance policies allow use of the policy to pay for long-term care services
Obtaining loans on a policy
Exchanging a policy for cash value
Using accelerated death benefit features (if available and purchased)
Draw down on proportion of death benefit
Amount that may be accelerated varies by policy
Amount accelerated reduces benefit available at death
Person must meet policy’s definition for terminal illness or chronic illness
Qualifies for special federal tax treatment in case of chronic illness provided that the accelerated benefit is used for qualified long-term care services as defined under federal law (HIPAA)
Buying a rider that will pay for long-term services
All life insurance policies – whether issued as group or individual policies - are subject to MA DOI review
Pro: Draws on available resource when care is needed
Con: Reduces death benefit that can be transferred to beneficiary

9. Annuity Contracts
Certain annuity contracts allow the contractholder to use benefits to pay for long-term care
Obtaining loans on annuity contracts
Withdrawing portions of annuity accounts
Surrendering contracts for account value
Many contractholders would qualify for a waiver of surrender charge in case of chronic illness provided that the accelerated benefit is used for qualified long-term care services
Obtaining long-term care rider attached to the annuity contract
All annuity contracts - whether issued as group or individual policies - are subject to MA DOI review
Pro: Draws on available resource when care is needed
Con: Depletes account values that may be needed elsewhere

10. Long-Term Care Insurance
Long-term care policies pay for long-term care services according to the terms of the policy
Person must meet benefit eligibility triggers
Inability to perform stated number of Activities of Daily Living
Cognitive Impairment
Benefits are as chosen by applicant and as specified in the policy
The more comprehensive the plan, the higher the cost
Applicant needs to understand services and project what may be needed in future
Few provide a cash benefit to pay for open-ended benefits
Most provide a set dollar benefit per day for specifically listed services
Only individual policies are reviewed by DOI under existing law
Pro: Devotes coverage solely to long-term care services
Con: Substantial premiums paid before any benefits and only will pay benefits for specifically covered long-term care services

11. Features of Traditional Long-Term Care Insurance Plans
Consumer chooses benefits
for specified list of covered services
e.g., skilled nursing stays, home health care, adult day care
for specified dollar amount per day/month
e.g., $200 per day or $6,000 per month
for specified length of time (years/unlimited)
e.g., 2 years, 4 years, or unlimited timeframe
after deductible (called elimination period)
E.g., 180 days or 1 year
either federally tax-qualified or not
Primarily based on eligibility triggers
May qualify for federal income tax deduction

12. LTCI Example 1 – Costs/Benefit Stay Same
Assume: Cost is $350/day
Cost paid by insurance company
Insurance Benefit: $200/day for 2 years after 180 day elimination period
Cost to the policyholder
$500
$400
$300
$200
$100 $0
180
365
730
1095
1460
1825
(1 Yr.)
(2 Yrs.)
(3 Yrs.)
(4 Yrs.)
(5 Yrs.)
# OF DAYS IN A NURSING HOME
COST PER DAY

13. LTCI Example 2 – Costs Go Up/Benefit Stays Same
Assume: Cost starts at $350/day, goes up with inflation
Cost paid by insurance company
Insurance Benefit: $200/day for 2 years after 180 day elimination period
Cost to the policyholder
$500
$400
$300
$200
$100 $0
180
365
730
1095
1460
1825
(1 Yr.)
(2 Yrs.)
(3 Yrs.)
(4 Yrs.)
(5 Yrs.)
# OF DAYS IN A NURSING HOME
COST PER DAY

14. LTCI Example 3 – Costs/Benefit Go Up at Different Rates
Assume: Cost starts at $350/day, goes up with inflation
Cost paid by insurance company
Insurance Benefit: $200/day for 2 years after 180 day elimination period and policy includes inflation protection rider
Cost to the policyholder
$500
$400
$300
$200
$100 $0
180
365
730
1095
1460
1825
(1 Yr.)
(2 Yrs.)
(3 Yrs.)
(4 Yrs.)
(5 Yrs.)
# OF DAYS IN A NURSING HOME
COST PER DAY

15. Massachusetts Required Features
Guaranteed renewable, BUT rates may change
Benefit eligibility when not able to do Activities of Daily Living or cognitive impairment
No pre-existing condition period of more than 180 days
Benefit of at least 365 days or a $ amount = 365 X Daily Benefit
Plans with both NH and HH: HH at 50% of NH daily benefit
No restrictions on level of benefit chosen
Elimination period of no more than 365 days
Alternate Care Benefits
Required benefit offers
Inflation Protection Benefit (CPI or other offered increase)
Nonforfeiture Benefit (e.g., return of proportion of premium at policy termination)
One plan with Home Health Benefit
One plan meeting MassHealth standards ($125/day for a period of at least 2 years and with an elimination period no greater than 180 days)

16. Massachusetts and Partnership
Massachusetts is NOT a federal Partnership state
If Partnership state, plans are specially regulated
Partnership agents get special training
Partnership plans have Partnership disclosures
holding Partnership plan qualifies for certain MassHealth exemptions
Massachusetts operates under a quasi-Partnership grandfathering rule
plans have special disclosures, but language is not clear
holding plan that meets MassHealth minimum of 2 years at $125/day when entering nursing home qualifies for certain MassHealth exemptions
Becoming a Partnership State requires statutory changes
Pro: Would clarify consumer protections and MassHealth exemptions
Con: Some claim that eligibility conditions for benefits are stricter for
federal Partnership plans than current Massachusetts standards

17. Disclosure Required distribution of DOI guide
Standard rate quote sheet
Standard questions on application
Standard Outline of Coverage
Summarizes benefit features

18. Concerns MA has not enacted NAIC Model Act/Regulation
No required special training for producers
No prior approval of marketing materials
No restrictions on 1st year commission levels
No rate stabilization provisions
No contingent benefits when policyholders lapse after implementation of large rate increases
No guidance to judge whether product is suitable for the specific applicant
LTCI insurers are filing large rate increases

19. The Number With Long-Term Care Insurance Policies

20. National Market – Number of Policyholders

21. Massachusetts Market – Number of Policyholders

22. National Market – Average Age

23. Massachusetts Market – Average Age

24. Other possible private financing options
Tax-exempt savings accounts
Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs) currently allow saving funds that can be used to pay for qualified health treatments
Research could explore benefits of establishing like accounts for long-term care expenses
Social insurance programs
Federal legislative committees are considering Medicare- type programs funded by enrollees’ premium payments
Considering both voluntary and mandatory programs be included in comprehensive health reform packages

25. Questions