Module #4 Health, Disability, and Long-Term Care Insurance

The major features to consider when evaluating a disability income policy are

the definition of disability the elimination, or waiting, period the maximum benefit payable the maximum benefit period renewal provisions the premium structure of disability policies.

Coinsurance Example

a policy may state the coinsurance as 80/20, or simply 20%. This means the insured pays 20% of approved medical expenses above the deductible until the maximum out-of-pocket limit is met.

After a qualifying event (e.g., termination, disability), the employer must notify the employee (or spouse) that benefits are available. Upon receiving this notification, the recipient must make the election to continue benefits under COBRA within

60 Days

Medicaid assets that generally count toward Medicaid eligibility include the following:

Checking and savings account Stocks and bonds Certificates of deposit Real property other than your primary residence Additional motor vehicles, if you have more than one

Poverty alone does not qualify someone for Medicaid. In addition to income requirements,

individuals need to satisfy federal and state requirements regarding residency, immigration status, and documentation of U.S. citizenship.

A deductible is the

initial amount of covered expenses the insured must pay before the health care plan begins to pay. One of its purposes is to lessen the cost of the insurance—the higher the deductible, the lower the premium.

LTC is generally divided into three categories:

1. Skilled nursing care 2. Intermediate care 3. Custodial care

Social Insurance Supplement (SIS) Rider

A disability income policy may also be structured to integrate the amount of benefit received with Social Security disability coverage. Its purpose is to reduce the disability policy benefit by the amount of Social Security that the disabled person is eligible to receive. When this rider is added, a policy pays its full benefit unless, and until, some social insurance benefit, such as Social Security or workers' compensation, is paid to the insured. By including this benefit, the policyowner will be able to reduce the policy premium.

capitation fee

A primary care doctor receives a capitation fee to take an individual as a patient; as a result, the pool of available doctors is limited.

Medicaid assets that generally do not count toward Medicaid eligibility include the following:

A primary residence, with some limitations 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 (e.g., pre-need burial agreements)

Annuity/LTC Hybrid Policies

A second form of hybrid policy is an annuity/LTC combination. The annuity is typically funded with a single premium or a rollover through a Section 1035 exchange from a life insurance policy or annuity. Typically, the LTC benefit is expressed as a multiple of the single premium deposited into the annuity. For example, if the multiple is two and the single premium is $100,000, there would be $200,000 available for LTC benefits. In addition to growing tax free and having some creditor protection, any distributions from these will be tax free if used for paying for care. This is different from the taxation of regular annuities in which distributions (after appropriate basis adjustment) are taxed as ordinary income.

additional insurance rider (AIR)

Another type of cost-of-living rider. Essentially, this is a combination of the cost-of-living rider and the guaranteed insurability option. This benefit automatically increases policy benefits by 1.5%-2.5% each year while the insured is not disabled. Typically, at the end of four or five years, the company asks for financial data to determine if the insured is eligible to continue to have benefits increase.

Activities of Daily Living (ADLs)

Bathing Continence Dressing Eating Toileting Transferring (e.g., getting from bed to a chair)

Why would an individual have a nonqualified LTC policy?

Even if the benefits from a nonqualified LTC insurance policy are fully taxable when received, there may be an offsetting deduction. People may have a policy that has unique benefits that cannot be obtained any longer, so they may choose to keep a nonqualified policy. A client may not be able to qualify for a qualified policy but may be able to qualify for a hybrid or nonqualified policy.

Qualified LTC Policies

HIPAA established requirements so that individuals with qualified policies could deduct all or a portion of their premiums from income for tax purposes. Additionally, payments from policies for qualified expenses are not taxable. Insurers must disclose whether a policy is qualified or nonqualified.

Spending Down Assets Medicaid LTC

In addition to medical qualifications required to qualify for benefits, in general terms, an individual must "spend down" their assets to a low level to be eligible for Medicaid-covered LTC. The general asset limit for Medicaid in most states is $2,000. Spending down assets means using up whatever resources are available until a small amount remains

Medicare supplement insurance plans do not cover

LTC needs such as custodial care, adult day care, care for those with Alzheimer's disease, or assisted living.

partnership qualified policies

Medicaid for clients who continue to need coverage beyond the policy limits. These policies must meet special requirements, which may vary from state to state. Some of the basic provisions these policies are expected to offer include the following: Comprehensive LTC benefits that provide benefits at the client's home or in a facility The normal consumer protection, which clients would get with purchasing a regular LTC policy Inflation protection

Because Medicaid, unlike Medicare, provides coverage for long-term care (LTC)—including nursing home care—many people are tempted to use this program as a way to shift the cost burden of nursing homes to the government. Due to this temptation,

Medicaid law includes a provision defining a lookback period of 60 months for assets transferred to others (usually adult children) designed to impoverish the donor to become eligible for Medicaid. If a transfer is made within this 60-month lookback period, the applicant is ineligible for Medicaid benefits for a length of time equal to the amount transferred divided by the monthly cost of nursing home care for the region.

A health maintenance organization (HMO) is distinguished by the

Medical providers receiving a fixed monthly payment, called the capitation fee, and the presence of a primary care physician (PCP) or gatekeeper.

Two differences between Medicare Advantage plans and most group plans are that

Medicare Advantage plans often include dental, hearing, and vision coverage, and premiums are subsidized by Medicare.

Nonqualified LTC Policies

One benefit trigger, medical necessity, cannot be included if a policy is to be HIPAA qualified, but is included in a number of nonqualified policies. Medical necessity is the requirement that a physician state that LTC benefits are necessary for an individual's overall health and well-being. Another benefit that may be available in a nonqualified policy is a return of premium benefit. This option generally results in higher premiums that may well offset potential benefits, so it may not be a particularly good option to choose, and is prohibited on qualified policies.

Small Business Health Options Program (SHOP)

One of the goals of the PPACA is to make it easier for small businesses to offer insurance to their employees. To help achieve this goal, the Small Business Health Options Program (SHOP) is open to employers (including nonprofit organizations) with fewer than 50 full-time equivalent employees. SHOP allows the employer to control the coverage it is offering and how much it pays toward employee premiums. Employers with fewer than 25 employees may qualify for the Small Business Health Care Tax Credit of up to 50% of premium costs. The greatest benefits are for employers with fewer than 10 employees making under $25,000. Sole proprietors or those covering just themselves and family members as employees are not eligible for SHO

indemnity plans

Plans where the client has total choice of providers without payment discrimination

providers of Medicare supplement plans must deliver

The Medicare Supplement Buyer's Guide to each buyer.

own occupation definition of disability

The broadest definition of disability. Considers insureds totally disabled if they are unable to engage in the principal duties of their own occupation.

Two different forms of conditionally renewable disability policies are available.

The first, and least common, gives the insurance company the right to disallow renewal/continuation of a policy under certain conditions. The second, which is more common, is attached to many policies that provide benefits to age 65. This form allows an insured individual who reaches age 65, and who continues to have earned income, to renew the policy to provide protection against a disability interrupting those earnings. The premium for the policy after age 65 is based on the attained age of the insured, and benefits are typically provided to age 70.

any occupation definition of disability

The narrowest definition in use in the private insurance industry. Insureds are considered totally disabled if they are "unable to perform the duties pertaining to any gainful occupation." For example, under this definition, an electrician or a trial attorney who is disabled to the point of not being able to do their regular job, but is able to work at a fast-food restaurant at a significant loss of income, would not receive any benefits.

Life/LTC Hybrid Policies

The policyholder purchases a death benefit and pool of money for LTC. If the policyowner never needs care, the entire amount is an income tax-free death benefit. If the policyowner needs LTC before death, the amount is paid out in the form of LTC benefits over a specified time period.

Disability buyout insurance

These policies may provide for either a lump sum payment or series of payments after an elimination period. The amount of coverage typically is limited to no more than 80% of the market value of the insured owner's share, with a maximum that would not be sufficient for most multimillion-dollar businesses. The elimination period is a minimum of 18 months, but more commonly is two or three years

Recall that Medicaid is

a joint federal and state health insurance program. Generally, the program is administered by the states with financial assistance from the federal government.

modified own occupation definition of disability

a modification of the own occupation definition. The insured is considered disabled if he is unable to engage in any occupation for which he is reasonably fitted by education, training, experience, and, with some policies, prior economic status. For example, the trial attorney just discussed would still be considered disabled if the attorney were unable to handle the rigors of trial work, and the policy would pay a benefit. However, if the attorney began teaching law (or entered into some other occupation), the policy would not pay.

Elimination Period

also referred to as the waiting period, is the period after the disability occurs and before benefit payments begin. The elimination period essentially is the deductible for a disability income insurance policy. In other words, it is a time deductible, as it defines the amount of time the insured must wait before the benefit period begins.

Specifically, HIPAA provided that there could not be enforcement of a pre-existing medical condition clause if

an employee was covered by the prior employer's health insurance plan for at least 12 months, and fewer than 63 days have elapsed since the loss of coverage under the prior employer's plan.

PPO subscribers pay

an insurance premium when they enroll in the PPO. The premium is generally less than an HMO fee, but PPO plans also have deductibles, coinsurance, and copays. Out-of-pocket costs depend on the amount of care provided.

Internal Limits

are either in the form of excluded treatments or in the form of controls that limit the extent to which certain benefits may be used and paid for by the plan.

Prepayment plans

are managed care plans in which payments for services are negotiated and paid to health care providers.

Benefit payments from group disability policies, where premiums have been paid by the employer, or when the employee has paid the premiums on a pretax basis, generally

are taxable to the employee.

The probation period

as the period during which the individual policy must be in force before the insured is covered for specified perils or illnesses. It is specifically designed to protect the insurance company from having to cover certain pre-existing conditions and other adverse selection situations. Generally, if an insured discloses pre-existing conditions on an application for insurance and the company does not eliminate or discount the conditions in the policy, the insured is fully covered. Pre-existing conditions that are not disclosed are not covered during the probation period, which can range from 30 days to two years.

Partnership Long-Term Care Insurance

bring together state government and private insurance companies, which sell LTC insurance, with residents who may want to purchase LTC insurance. The goal of these programs is to help citizens purchase less lengthy, more complete LTC insurance.

Presumptive Disability

clause provides that full disability benefits will be paid if the insured loses their sight, hearing, speech, both hands, both feet, or one hand and one foot. However, some policies do not cover all of these losses. Some policies require the loss to be total and permanent, while others cover even a temporary loss.

Medicare special needs plans

cover individuals with special health needs. Frequently, these plans are referred to as dual eligible because they may be receiving benefits from both Medicare and Medicaid. Special needs plans must provide the benefits of Parts A, B, and D. Often, they will provide extended benefits with lower copayments.

Medicare Part A

covers four main benefit areas: inpatient hospital care, posthospital extended care in a skilled nursing facility, posthospital home health services, and hospice care.

Health Insurance Portability and Accountability Act of 1996 (HIPAA)

eliminated the previously detrimental aspects of changing jobs and enrolling in a new employer group health insurance plan that included a pre-existing conditions clause.

Skilled nursing care

essentially means that a registered nurse (RN) is available and supervises the care 24 hours per day, and the care is required by a physician. If this is the case, the first 20 days in the facility are fully paid by Medicare. The next 80 days are also covered, but with a daily coinsurance, which is established every year ($176.00 in 2020). After 100 days, the insured pays all costs.

Medicare is a

federal health care program for persons age 65 or older, younger disabled persons who qualify for Social Security disability insurance (SSDI) after 24 months, and anyone who has end-stage renal (kidney) disease. Hospital insurance benefits are financed by a tax on all earnings that must be paid by every person who is subject to the regular Social Security tax or to the railroad retirement tax.

copayment

fixed fee for each visit to a health care provider's office

To be covered by Medicare, an individual must be

fully insured according to Social Security. Qualification requires accumulating at least 40 credits, which are earned by generating a minimum amount of work-related income over at least the past 10 years and paying Social Security taxes.

Medicare HMOs

function in the same manner as a traditional HMO. With the exception of emergency or urgent care, Medicare HMO patients must receive medical care through HMO-contracted doctors and hospitals (i.e., in-network care).

Custodial Care

generally refers to care that is not medical in nature, but is nonetheless necessary for the health of the individual. This includes such things as assistance with ADLs (e.g., bathing, moving from bed to a chair, eating).

Guaranteed Purchase Option Rider

guarantees the insured the right to increase a policy's benefit amount or purchase additional policies at specified option dates or time periods in the future, regardless of physical health, as long as the insured's income at that time meets the underwriting requirements for the increased benefit.

The Program of All-Inclusive Care for the Elderly (PACE)

is a Medicare and Medicaid program that provides an alternative to nursing home care. The PACE plan generally allows participants to live in and receive care at their own home rather than moving into a nursing home. Individuals who want to participate in the PACE program must be at least 55 years old. They also must live in a PACE service area (not all states or all areas within a state provide PACE services), and be certified as eligible for nursing home care by the appropriate state agency.

Children's Health Insurance Program (CHIP)

is a federal program that is administered by the states. CHIP provides health insurance to children in families who do not qualify for Medicaid. Typically, CHIP benefits are applied for at the same time as Medicaid benefits.

Medicaid

is a government insurance program for persons of all ages whose income and resources are insufficient to pay for health care. Medicaid is a federally initiated program, but it is primarily administered, and at least partially funded, at the state level.

Preferred Provider Organizations (PPOs)

is a group of providers (e.g., generalists, specialists, hospitals, clinics) that have agreed to be part of the plan. The plan pre-negotiates charges and fees for all the different services. These fees are typically discounted from the standard charges of the physician/hospital. Providers accept the discounted rates with the anticipation of increased patient volume. PPOs operate on a fee-for-service rather than a prepaid basis like an HMO.

Point-of-Service (POS) Plans

is a hybrid between an HMO and a PPO. Typically, the insured will need to designate a PCP and use that PCP for referrals to specialists. Unlike the HMO, an insured may receive care outside the network and still receive some form of benefit level. The POS plan has more restrictions than a PPO, but it is not as restrictive as an HMO. The overall purpose of a POS plan is to provide financial incentives to each covered individual to use the lowest-cost providers, while still maintaining a full range of choices for each person. This type of plan is popular because it addresses everyone's needs—the need of the plan to hold down costs and the desire of covered persons to have a choice regarding health care services.

comprehensive major medical policy

is an indemnity plan that incorporates essential medical services under one plan. Each policy may have limits within it defining what it will and will not cover and can have exclusions and limitations for various services. The amount of coverage can vary based on the policy, and the prices will reflect the level of coverage

Case Management

is another form of utilization review that is used to control costs and optimize patient benefits in the treatment of expensive illnesses such as diabetes, hypertension, AIDS, cancer, or heart disease. In this process, the health care plan's medical staff is involved from the outset in setting up a long-term treatment plan. For example, the medical staff may recommend the use of home care or a hospice instead of hospital confinement. They also might recommend rehabilitation services if these services could assist in returning the patient to productivity more quickly.

Daily Benefit Plans

is another type of indemnity plan typically offered by specialty providers that pays a daily benefit (or fixed dollar) amount when the insured is sick, in the hospital, or disabled. Premiums are based on the chosen benefit amount

Hospice Care

is care for terminally ill patients and may take place at a patient's home, in a hospice care center, or a nursing home.

Business Overhead Expense (BOE) Insurance

is designed to cover the expenses that are usual and necessary in the operation of the business, should its owner become disabled. Such a policy will cover the ongoing cost of business operation while the owner is disabled but will not reimburse the owner's salary during that time. The policy premiums for BOE insurance are a deductible business expense to the company, but the proceeds are taxable income to the business.

A Medicare private fee-for-service (PFFS) plan

is offered by a private insurance company working with the Medicare system. In rural or sparsely populated areas, the larger providers may not find providing coverage attractive. Signing up doctors, managing care, and preparing materials may make some companies decide not to offer coverage in certain counties in a state. PFFS plans usually charge a premium above the Medicare Part B premium. Prescription drugs may or may not be covered. Also, as with the other Medicare Advantage plans, Medicare supplement policies are not needed.

Skilled Nursing Care

is the highest level of care, and generally refers to 24-hour availability of a registered nurse (RN) under a doctor's supervision.

Maximum Out-of-Pocket (MOOP) Limit

is the limit the insured will pay out of pocket for care. Most of the health plans today include the deductible, copayments, and coinsurance under the definition of MOOP

Medical necessity

is the requirement that a physician state that LTC benefits are necessary for an individual's overall health and well-being.

Patient Protection and Affordable Care Act of 2010 (PPACA)

made sweeping changes to the American health care system. A primary driver in the passage of the PPACA was that the country's health care system had coupled affordable coverage with employment by large employers, creating systemic problems. People wanting to change jobs, start a business, retire early, or reduce hours to stay at home with children are no longer restricted by employer-provided health insurance.

Health Maintenance Organizations (HMOs)

may have many of the same components as an indemnity insurance plan, the amounts received by providers in an HMO are approximately the same as what would be received under a prepaid medical services plan. The doctors and hospital staff are employees/contractors of the HMO. The plan offers the services of its own participating physicians and hospitals to the plan's subscribers under the terms of a contract similar to a comprehensive major medical contract. The difference is that a subscriber can use only the physicians that are a part of the HMO network. Other than for emergency services, a subscriber who uses a nonparticipating physician or hospital will have no coverage or pay additional costs for care.

noncancelable renewal provision

means that not only can the insured renew the policy for the full term specified in the policy (the same as under guaranteed renewable), but the company cannot change the premium from what is stated in the contract. Noncancelable is the obvious choice from the insured's point of view, although it should be noted that actuaries have priced the company's inability to raise the premium into the contract. Thus, these are more expensive up front than a guaranteed renewable policy.

Benefit payments from individually owned and paid-for disability policies are

not usually taxable, because premiums are paid with after-tax dollars

Medicare PPO

offer many features of an HMO, but with fewer restrictions. However, this coverage may be more expensive than an HMO.

Postpayment plans

pay for covered expenses once they are incurred.

Medicare Part B

pays physicians and for other outpatient treatment, certain preventive services, screening tests, and home dialysis, as well as other services.

cost-of-living adjustment rider

periodically increases disability benefit payments to avoid the problem of a loss of purchasing power during the course of a long-term disability. The most common approach to a cost-of-living rider is to have benefits increase, after a disability begins, by the Consumer Price Index (CPI) or by a percentage specified in the policy, whichever is less. The cost-of-living rider is one of the more expensive riders that can be attached to a disability income insurance policy, and the potential benefits are substantial. Without this rider, an individual who is disabled for a long period will face significant hardship.

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

provides for the continuation of health care benefits when an employee leaves work (whether voluntarily or involuntarily). COBRA applies only to the core health insurance coverage (i.e., major medical or HMO), not to ancillary benefits such as disability insurance. In most cases, employees may maintain group health insurance benefits for up to 18 months after leaving work. Employers with 20 or more employees normally have to offer this extended health insurance coverage to terminating employees. A part-time employee counts as half an employee for purposes of this rule.

Medicare Part C (Medicare Advantage)

provides four program alternatives: Medicare HMO, PPO, private fee-for-service, and Medicare special needs plans. Medicare MSAs may also be available to supplement the basic coverage.

Medicare Part D

provides prescription drug coverage.

coinsurance

refers to a splitting of the costs of medical care between the insurance company and the insured.

Intermediate Care

refers to less intensive nursing, or rehabilitative care. This level of care does not require 24-hour availability of an RN or physician.

HMOs provide both the health care service and the health care financing, while

traditional health care insurance companies provide only the financing.

lifetime reserve days

up to a total of 60 additional days of inpatient hospital care can be used. Copayments are required for such additional days. these days are non renewable and can be used after the patient exhausts his 90 days of inpatient care