Insurance Ch 7 Long Term Care Insurance
Long-Term Care Insurance Features and Benefits
Long-term care policies are guaranteed renewable return of premium provision. The insurance company can increase premiums if for it is an increase for the entire class of insureds and is approved by the state's Insurance Commission
What services does Long-term care provide?
Long-term provides personal care and supportive services when a person is unable to care for themselves due to illness, disability, or cognitive impairment.
What a major difference between Long Term Care Services and Medial Services?
Medical services try to treat or cure the condition. Long-Term Care Services manage the condition and do not attempt to improve it.
What is NAIC?
National Association of Insurance Commissioners
What are common features of a LTCI Policy?
Renewability - Guaranteed renewability Nonforfeitures Benefits - Return of Premium or Shortened Benefit Period Waiver of premium while receiving benefits
Strategies to Manage the Cost of Long-Term Care Insurance Premium
Shop extensively Apply while young Reduce benefits Manage daily limits Manage lifetime benefits Manage COLA 3% flat vs 5% compound
Optional Benefits that can be added onto an LTCI Policy Respite Care
Substitute care is provided so that the care giver can take a break.
What is HIPAA and when was it created?
The Health Insurance Portability and Accountability Act (HIPAA) 1996
What Legislation did the National Association of Insurance Commissioners establish in the 1980s?
The Long-Term Care Insurance Model Act
What is the average stay in a nursing home?
The average stay in a nursing home is approximately 2.4 years
Optional Benefits that can be added onto an LTCI Policy Bed Reservation
The bed reservation benefit allows for the institutionalized individual to have a short-term absence without fear of losing his or her place in the institution. Bed reservation benefits are typically limited to 15 or 30 days.
Optional Benefits that can be added onto an LTCI Policy Refund of Premium
The company will refund some or all of the insured's premiums minus any claims paid under the policy if the policy is canceled. The insured's beneficiary will receive such refund if the insured dies.
Centers for Medicare and Medicaid Services (CMS).
The federal division that oversees the Medicaid Program
What aspects of Medicaid does the CMS direct? What aspects of Medicaid do the States direct?
The federal government establishes broad national guidelines each State establishes its own eligibility standards; determines the type, amount, duration, and scope of services; sets the rate of payment for services; and administers its own program. state legislatures may change Medicaid eligibility, services, and/or reimbursement at any time
LTCI Non-forfeiture Benefit
The guarantee, required to be offered by the insurer, that the insured will receive some of the benefits for which the premium was paid. This guarantee can be rejected. You pay more for this benefit The longer premiums are paid, the larger the non-forfeiture benefit will be. The larger of the total of the premiums paid or 30 days times the skilled nursing home benefit.
Define: Maximum Lifetime Benefit aka The Total Plan Benefit
The maximum benefit limit or the total amount a LTCI policy will pay in terms of years or dollars.
How is the Medicaid 5 year look back penalty calculated?
The penalty period is calculated by dividing the value of the property transferred by the average monthly cost of a nursing home in the state. If the value of the property transferred was $50,000 and the average monthly cost of nursing home care is $5,000, the penalty period is 10 months ($50,000/$5,000).
Optional Benefits that can be added onto an LTCI Policy Waiver of Premium
This provision allows the insured to stop paying premiums during the period in which they are receiving policy benefits. However, this provision may only apply to certain benefits, for example, nursing home or home healthcare
What are two types of chronic illness that trigger LTCI Benefits?
To be considered chronically ill, the insured individual must be certified as such by a qualified health professional within the previous 12 months. Physical impairment: *unable to perform at least two activities of daily living (ADLs) due to a loss of functional capacity. *Expected to be unable for a period of at least 90 days Cognitive impairment: * requiring substantial supervision to prevent the insured from posing a danger to himself, herself, or others
What are Two of the most important factors in policy selection?
Two of the most important factors in policy selection are 1 - actually qualifying for coverage (underwriting, as discussed previously in this chapter) and 2 - the financial strength/claims-paying ability of the insurer (as discussed in Chapter 2
What is the contingent benefit if an insured rejects the LTCI Non-forfeiture Benefit
When the insurance company increases the premium, the insured wishes to maintain the lower premium, they can: 1-choose a reduced benefit amount 2-Convert the policy to a Paid Up Policy The larger of the total of the premiums paid or 30 days times the skilled nursing home benefit.
When will a person using personal assets to pay for Long Term Care Services become eligible for Medicaid?
When they have depleted their assets.
Long-Term Care Benefit Periods (Benefit Multiplier)
You receive benefits for a fixed period of time or for a fixed dollar amount
In what settings is Long Term Care provided?
at home, in the community, in a residential setting, or in an institutional setting (nursing home).
What are the 6 ADLs?
bathing, dressing, eating, toileting, transferring, continence
How long is a terminal illness expected to last for Hospice?
hospice care at home or in a licensed facility if the terminal illness is expected to be six months or less.
Why is there a Medicaid 60 month(5 yr) lookback?
makes it more difficult for individuals with the resources to pay for their own long-term care services to inappropriately transfer assets in order to qualify for Medicaid.
What persons will Medicare cover?
persons age 65 and over and for people under age 65 with disabilities.
Optional Benefits that can be added onto an LTCI Policy Restoration of Benefits
policies will restore the maximum benefit amount in the event that the insured receives benefits, then recovers and does not receive benefits again for a specific period of time, often 180 days.
Types of Care
skilled nursing custodial care, home health care, hospice care, adult day care, assisted living facilities
What does Long Term Care Insurance Cover?
the cost of nursing home care that exceeds the coverage provided by medical insurance and Medicare, and the cost of custodial care (assistance with activities of daily living) provided at home.
LTCI Policy - Shared Benefits
use of the benefits available under his or her spouse's policy
Optional Benefits that can be added onto an LTCI Policy
waiver of premium, refund of premium, restoration of benefits, and bed reservation
Medicaid Eligibility - What assets are countable/included?
• Checking and savings accounts • Stocks and bonds • Certificates of deposit • Real property other than your primary residence • Additional motor vehicles if you have more than one • Retirement plan assets that can be withdrawn in a lump sum (such as IRAs and 401(k)s)
Activities of Daily Living (ADLs)
• Eating • Bathing • Dressing • Transferring • Toileting • Continence
aspects that must be considered before choosing to purchase a long-term care policy
• Factors that affect LTC policy premiums (discussed in detail later in this chapter) • Partnership program coordination • Liquid assets available to pay for care • Desirability of asset protection for heirs • Family history • Client risk tolerance/aversion
What is the difference between Home Health Services and Home Care Services?
• Home health services - medical care provided in the home by trained professionals such as doctors and nurses. • Home care - personal care provided by family members or paid caregivers • Home health services are mandatory while home care is optional
Per Federal Guidelines, what Medicaid benefits are States required to provide?
• Inpatient and outpatient hospital services • Physician services • Nursing facility services • Home health services • Early and periodic screening, diagnostic, and treatment services • Laboratory and x-ray services • Rural health clinic services • Federally qualified health center services • Family planning services • Nurse midwife services • Certified pediatric and family nurse practitioner services • Freestanding birth center services • Transportation to medical care • Tobacco cessation counseling for pregnant women
What characteristics of an Annuity are required to make it a Medicaid Compliant/Qualified Annuity?
• It must be irrevocable and non-assignable. • It must be actuarially sound so the payments over the community spouse's life expectancy will at least equal what was paid for the annuity. If there is a term certain it must be shorter than the community spouse's life expectancy. • Payments must be in equal amounts with no deferral or balloon payments. • The state must be named the remainder beneficiary up to the amount of Medicaid payments made for the resident spouse
Instrumental Activities of Daily Living (IADLs)
• Medicine Management • Shopping • Preparing Meals • Housekeeping • Doing Laundry • Using Transportation • Handling Finances • Communicating via telephone
Medicaid Eligibility - What income sources are excluded?
• Nutritional assistance (food stamps) • Housing assistance provided by the federal government • Home energy assistance
What expenditures are allowable to spend down to qualify for Medicaid?
• Paying off debts, including credit cards, mortgages, auto loans, taxes, and other legitimate debts • Purchase of a new exempt asset such as a car or home • Payments for home improvements and repairs to a home and car • Pre-payment of funeral and burial expenses • Payments for services under caregiver agreements, even when a child or sibling is the caregiver • Purchase of certain annuities (Medicaid-compliant annuities are discussed below)
Medicaid benefits that States may provide on an optional basis?
• Prescription drugs • Dental services • Hospice • Preventive and rehabilitative services • Physical therapy • Chiropractic services • Personal care • Clinic services • Occupational therapy • Speech, hearing, and language disorder services • Respiratory care services • Podiatry services • Optometry services • Dentures • Prosthetics • Eyeglasses
Medicaid Eligibility - What assets are not countable/excluded?
• Primary residence • Personal property and household belongings • One motor vehicle • Life insurance with a face value under $1,500 • Up to $1,500 in funds set aside for burial • Certain burial arrangements such as pre-need burial agreements • Assets held in specific kinds of trusts • Retirement plan assets that cannot be withdrawn in a lump sum (such as defined benefit pension plans in which a lump sum distribution is not available)
Medicaid Eligibility - What income sources are considered/Included?
• Regular benefit payments such as Social Security retirement or disability payments • Veterans benefits • Pensions • Salaries • Wages • Interest from bank accounts and certificates of deposit • Dividends from stocks and bonds
What are four Strategies for Medicaid Eligibility
• Spending down of assets and income • Transfer of assets to spouse • Special needs trust • Medicaid qualified annuity
Asset transfers to whom is permitted without causing Medicaid ineligibility?
• Transfer to a spouse • Transfer to a child who is blind or disabled • Transfer in trust for the benefit of a person under age 65 and disabled • Transfer of a home to a child under the age of 21 or a child who has lived in the home for at least two years before the applicant moved to a nursing home and provided care that enabled the applicant to stay in the home during that time • Transfer of a home to a sibling who has an equity interest in it and who lived in it at least a year before the applicant moved to a nursing home
What persons does Medicaid cover?
• certain individuals and families with low incomes and resources. • Medicaid became law in 1965 as a cooperative venture jointly funded by the Federal and State governments to assist States in furnishing medical assistance to eligible needy persons
What factors should one consider when selecting a LTCI Policy
• the premium • the period of coverage or total benefits • any inflation adjustment • the elimination (deductible) period • services covered • services excluded • who is the gatekeeper to determine qualification for benefits • how are benefits paid • what triggers benefits
What type of Long Term Care will Medicare cover?
•• A short stay •• In a skilled nursing facility, for hospice care, or for home health care •• If the recipient meets the following conditions: • Recent in the hospital for > 3 days • Is admitted to a Medicare-certified nursing facility within 30 days of the prior hospital stay • Needs skilled care, such as skilled nursing services, physical therapy, or other types of therapy, as a result of some medical condition that caused the hospital stay
What is a special needs Trust? A third party special needs trust
* A type of trust used to provide benefits to persons or beneficiaries with special needs * to ensure that benefits available from federal and state agencies are preserved and maintained * can be funded by a parent or guardian during life or at death and are sometimes funded through the proceeds from a life insurance policy * Does not pay for food or shelter for the bene. Instead pays for items such as medical treatment, therapy, education, travel, computer equipment, or other opportunities allowing the individual with special needs to pursue new and enjoyable experiences.
Tax-Qualified Long-Term Care Contracts
* An LTCI Policy that is deductible on income tax returns either as self-employed health insurance, * or if a medical LTCI premiums are paid for by an employer, the employer may deduct the premium cost as an employee benefit
The federal government requires states to try to recover Medicaid costs for long-term care What assets are exempt?
* Assets of surviving spouses are exempt from recovery but the state could try to get that after the surviving spouse passes.
What does The Long-Term Care Insurance Model Act establish?
* Established standards for long-term care insurance policies, to protect applicants from unfair or deceptive sales practices, and to facilitate public understanding and comparison among LTCI policies. * late 1980's, * Created by the National Association of Insurance Commissioners (NAIC)
What does the The Deficit Reduction Act of 2005 (DRA) effect:
* Established the 5 year look back to makes it more difficult for individuals with the resources to pay for their own long-term care services to inappropriately transfer assets in order to qualify for Medicaid. * created the Qualified State Long Term Care Partnership program for Middle-income individuals generally cannot qualify for Medicaid, and generally do not have enough resources to adequately self-insure. * Established a penalty period for inappropriately transferring assets in order to qualify for Medicaid.
Who Should Buy Long-Term Care Insurance - Financial Considerations
* Low Net Worth: Long-term care insurance premiums may be unaffordable; likely to qualify for Medicaid. However, children with higher income or net worth may desire to pay long-term care insurance premiums to provide protection for the parents. * Moderate Net Worth: Good candidates for long-term care insurance, especially if they have wealth transfer goals or want to ensure the ability to choose the care provider or facility. * High Net Worth: Likely able to self-insure but may desire to purchase long-term care insurance to protect assets for wealth transfer goals; premium payments reduce a person's estate, which may be beneficial from a transfer tax perspective
Qualified State Long Term Care Partnership program
* The Deficit Reduction Act of 2005 (DRA) * created the Qualified State Long Term Care Partnership program to encourage more people to purchase long-term care insurance. * For Middle-income individuals who generally cannot qualify for Medicaid, and generally do not have enough resources to adequately self-insure. * Allow people to apply for Medicaid under modified eligibility rules if there is continued need for long-term care after the policy maximum is reached * allows individuals to keep assets like personal savings above the usual $2,000 Medicaid limit * Only traditional long-term care insurance policies qualify; life insurance and annuity policies with LTC riders do not qualify * Partnership-qualified policies must be tax-qualified, contain certain consumer protections, and must include an inflation adjustment for applicants under age 75 in most states. * Since Partnership-qualified policies must include inflation protection, the amount of the benefits received can be higher than the original amount of insurance protection purchased.
What exclusions have some states allowed LTC policies to exclude?
* alcoholism and drug addiction * suicide, attempted suicide, or self-inflicted injuries * participation in a riot, felony, or insurrection * war or an act of war whether declared or undeclared * service in the Armed Forces * aviation activities, if the insured was not a fare paying passenger on a commercial airline
Medicaid-compliant (or Medicaid-qualified) annuity
* changes a countable asset into an income stream for the community spouse * allows a lump-sum amount to be converted to a guaranteed income stream over a set period of time or based on someone's lifetime, with no access to the principal amount once the income stream is started. * not available in all states * A "spend down" strategy that can be useful to the spouse * The payments from the annuity must be made to the community spouse to avoid affecting the Medicaid eligibility of the nursing home resident. * Must be an immediate annuity (with the income stream beginning immediately) - A deferred annuity will be a countable asset
Requirements to be eligible for Medicaid:
1- Financial: • A person must have limited income and limited assets 2- General: • Be age 65 or older • Have a permanent disability as that term is defined by the Social Security Administration • Be blind • Be a pregnant woman • Be a child, or the parent or caretaker of a child
Factors that Influence the Need for Long-Term Care Insurance
1-1Personal Risk Factors: life expectancy, gender, family situation, and family health history 2- Life Expectancy: The longer you life expectancy, the greater the chance LTC will be needed; Evaluate your immediate family's life spans to determine your own. 3-Gender - Women need LTC more than men because they live longer 4-Family Situation: Can the family provide care? 5- Family Health History: Is there a family history of chronic or debilitating health conditions historically run in the family? 6- Financial Considerations; Low net worth Individuals should probably attempt to qualify for Medicaid. Mid - Get LTC if you can. High - Get LTC to preserve assets OR self-insure. There are estate tax considerations.; The children may want to fund their parents LTC Insurence.
Four common way to pay for long-term care services:
1. Medicare 2. Medicaid 3. Personal assets and savings 4. Long-term care insurance
HIPAA contains the following requirements for long-term care insurance policies
1. Policies must be noncancellable or, at least, guaranteed renewable. 2. Pre-existing exclusion Maximum 6 month look back 3. Exclusions limited: Limitations on exclusions in long-term care insurance policies. 4. Group Policy Holders: Requirements for continuation or conversion 5. Termination notice to 3rd party required - due to nonpayment of premium, as well as a requirement that a lapsed policy be reinstated with proof of cognitive impairment 6. Prohibition of post-claims underwriting. 7. Minimum standards applicable to benefits for home health care and community health care. 8. Inflation protection must be offered. 9. Prohibition required prior hospitalization or nursing home to qualify for nursing home care 10. Nonforfeiture benefit made available
Long-term care policies must offer inflation protection in at least one of the following ways:
1. benefits automatically increasing by five percent or more each year compounded annually, 2. the policy limits increase three percent compound annually, or 3. the policy limits increase at five percent level per year.
What characteristics of an LTCI policy are required to make it Tax-Qualified?
1. must provide benefits that are limited to long-term care services (exception for per diem policies) 2. does not provide a cash surrender value or access to funds that can be paid, assigned, borrowed, or pledged as collateral for a loan 3. provides that refunds may be used only to reduce future premium payments or increase future policy benefits 4. must meet consumer protection standards defined in the Health Insurance Portability and Accountability Act of 1997 (HIPPA) 5. must coordinate benefits with Medicare 6. must offer a nonforfeiture benefit 7. must be guaranteed renewable
Between what ages is the best time frame to purchase LTCI?
50 - 60 years of age
As a rule of thumb, what percentage of your gross salary should LTCI premiums cost you?
7%
HIPAA contains the following requirements of LTC Insurers
A requirement that insurers 1. establish a process to ensure against inappropriate replacement of existing long-term care insurance policies. 2. report lapse rates, replacement sales, and denied claims each year. 3. A requirement that advertising materials used by insurance companies be filed with the state regulatory authority. 4. establish marketing standards to prevent twisting, high-pressure sales tactics, and "cold lead" advertising. 5. make reasonable efforts to determine the appropriateness of a recommended policy for the individual insured. 6. give prospective purchasers an outline of coverage, as well as an approved shopper's guide. 7 give group certificates that include a description of the policy's principal benefits and exclusions. 8. give a full refund of premium be paid up to 30 days after the policy is purchased, if requested. 9. give disclosure and reporting for accelerated death benefits that are subject to the NAIC's Long-Term Care Insurance Model Act and Regulation. 10. provide a defined incontestability period, and clear recission policy.
What factors effect the LTCI premiums?
Age and Gender Benefits (amount and duration) Health Characteristics Geographical Location Elimination Periods Inflation Protection Additional Riders
LTCI Guaranteed Purchase Option aka Guaranteed Future Purchase Option
Allows the insured to increase the benefits by a stated percentage periodically. The down side, premium increases as the benefit is increased. The right to purchase future increases may be lost if one or more purchase options are not taken
Conditions that Trigger Long-Term Care Benefits
An insured becomes chronically ill or has a terminal illness
Who provides Long Term Care Services?
At home: either by a home health agency or by family or friends. In the community: long-term care services can be provided at an adult daycare center. In a residential setting: long-term care services are provided by assisted living communities. Nursing homes: provide institutional care.
Important Coverages in Long-Term Care Policies
Coverage for Alzheimer's Disease At least one year of nursing home and/or home health care coverage, not limited primarily to skilled care Inflation protection No requirement to first be hospitalized to receive benefits
What is a big concern for someone using personal assets to pay for Long Term Care Serives?
Depleting assets and leaving the spouse with out sufficient financial resources.
What is meant by the Elimination Period? How does it affect the LTCI premiums?
Elimination Period: the period between being eligible medically and when benefits begin The elimination period, however, is inversely related to the cost of the insurance premiums. As the elimination period increases, the premium will decrease.
How many ADLs must a policy list in order to be considered tax-qualified?
For a policy to be tax qualified, it must list at least five of these six ADLs, and must define physical impairment as inability to perform at least two of the ADLs without substantial assistance
Instead of Inflation Protection, what could a LTC policy offer?
Guaranteed Purchase Option aka Guaranteed Future Purchase Option
Are benefits received from LTCI policies tax free?
In addition to the tax advantage of deductible premiums, benefits received from LTCI policies are generally tax-free.
Long-term care insurance: What risk does it mitigate? What will it pay for?
Insurance for Long-term care Mitigates the risks of needing and having to pay for long-term care services for an extended period of time Pays for home health care, nursing home stays, and hospice care.