LTCI policy review
By Julie Gelbwaks Gewirtz
Gelbwaks Executive Marketing Corp.
Long term care insurance has been in existence since the 1970s and there are a wide variety of policies that have been sold throughout the past three to four decades to consumers all over the United States. As an advisor, you will most likely run into situations where clients or prospects of yours already own some form of LTCI and you are asked to review these polices. Because of that, it is really not enough to simply know the details of what is being offered in today's marketplace. You also should have a handle on what was marketed in the past and the pitfalls consumers may fall into based on the antiquated language in some of these old contracts.
So much has changed over the years for the better when it comes to LTCI policy definitions, guidelines, and benefits. This article will give you some tips on how to review the insurance plans sold years ago. Please note that the best option is not always going to be replacement. As a matter of fact, in many cases, it is not at all in the client's best interest. The reasons for that are numerous. For example:
- The older they are, the higher the premium.
- They may not be as healthy as they were when they were originally purchased.
- Some of the policies are "grandfathered" and the insured may not be able get that same combination of benefits today.
1. Home care only, facility only, or integrated long term care? When that policy arrives on your desk, the very first thing you should look for is the basic structure of the contract itself. Approximately 99 percent of all policies sold in the country today are integrated long term care insurance plans which will pay benefits when care is needed in a home setting, assisted living facility, nursing home, or in some cases, even throughout the community, such as in adult day care centers or Alzheimer's centers. But in the past, a large percentage were sold as home care only, meaning they will only cover the insured if care is needed at home, or as facility only, where coverage is only available if the policyholder needs care while in a nursing home, for example. If it is a limited benefit plan like these mentioned, you may want to think about supplementing it with more well-rounded coverage, since a person never knows where they might need the care and it may not always be their decision at claim time. Buying home care only is like buying homeowners insurance on just your kitchen, since that is where the fire will be. Long term care is really an unknown; therefore, it is best to cover all bases. Also, check to see if the policy covers assisted living facilities at all. Many old contracts did not, but just because it wasn't clearly stated as a benefit does not mean that they could not be paid for through the alternate plan of care benefit, if there is one.
2. Benefit amount, benefit period, elimination period, inflation. This is an obvious one. In order to review a policy, the advisor must be aware of what benefits were purchased. Check to see that the benefit amount is high enough. Look at the average cost for care in the area the insured plans to receive it (not necessarily where they live now). This is one of the biggest mistakes people made in the past -- not buying a high enough benefit amount. If it needs to be increased, usually the best way to do that would be to sell them another policy and stack the two. The reason for this is because they would not be able to increase benefits on an existing policy without going through the entire underwriting process again, and rates would most likely be at the new age, as well. If the policy is too expensive for the insured to hold on to and a change must be made to keep it affordable, a good idea is to reduce the benefit period. This is another area where people sometimes made some mistakes in the past. Benefit amount is generally more important than benefit period. Lastly, consumers typically do not understand the way their elimination period or inflation options work. Do your best to read the definitions and explain it to them. Don't assume that you know how they work, since these two variables differ greatly from contract to contract.
3. Tax qualified, non-tax qualified or grandfathered? If a policy is tax qualified and purchased after 1/1/97, there are many definitions and language specifics that would have been dictated by the Federal Government through the HIPAA legislation. If it was purchased prior to 1/1/97 and is an integrated LTCI contract, then it would have been "grandfathered" in. Policies that were grandfathered were able to leave the language as is, but still give the consumer tax qualified status -- a possible deduction of premium and tax free benefit. Grandfathered policies are generally not replaced because of the special treatment that was granted to them.
5. Three-day hospital stay. If the policy you are reviewing is very old, you might find that it requires a three day hospital stay before the policyholder is eligible for benefits. This was originally done in an attempt to mirror Medicare benefits. Most of the language in these policies is so outdated that they do not look anything like the contracts sold today. Beware.
6. Bathing as an ADL trigger/ number of ADLs. ADL stands for "activities of daily living." These are the things a person does every day as part of their normal routine. In a tax qualified policy bought after 1/1/97, there are six ADLs: bathing, dressing, toileting, transferring (such as moving from the bed to the chair), continence, and eating. If they are non-tax qualified or grandfathered, they could also include ambulating/walking. You actually lose them in the reverse order that you learn them as a child. As a child, bathing is the very last thing you can do without adult supervision, whereas eating is the first thing you can do on your own. When you are an adult, bathing is traditionally the first to go and eating is the last one you lose. Many older policies did not include bathing as one of the ADLs. That made them not nearly as liberal as policies today.
7. Stand by and/or hands-on assistance. This is referring to the language in the policy regarding assistance with the ADLs. Hands-on assistance can be defined as assistance which requires the hands-on help of another person. An example of this might be that in order for you to be considered as having lost the ability to bathe, another person would be required to physically lift you into the shower or tub. Alternatively, stand-by assistance is regularly defined as assistance which includes supervision of another person. The example here would be that in order for you to have lost the ability to bathe, another person just needs to be standing by, or supervising, while you get in and out of the shower or tub. Some older contracts only had hands-on assistance language. All current tax qualified plans must include stand-by as well.
8. If tax qualified, is there expected language? Tax qualified policies require that in order for a policyholder to be eligible for benefits through the loss of two ADL trigger, a licensed health care practitioner must write up an assessment stating that the insured needs assistance with two of six ADLs and will need it for an "expected" period of 90 days. What this means is that as long as the expectation is there and the assessment has been made, if the claim only lasts 80 days it will still be paid. Look out though, because some policies do not use the word "expected" and therefore, those claims that do not actually make it the full 90 days (even if they were expected to) could be denied. This, by the way, has nothing to do with the elimination period.
9. Waiver of premium for home care. In the bulk of policies sold today, you will find a full waiver of premium for facility and home care. This means that if the policyholder goes on claim, he/she will no longer be paying premium, no matter where they are receiving the care. Many contracts written in the past did not include a waiver for the home care portion at all. Some required the applicant to choose it as a rider and pay extra for this feature. Either way, ensure your client knows about this one ahead of time.
10. Home care definition. The way "home care" is defined can vary greatly from contract to contract. Check to see if homemaker services are included. These are things like cooking, light housekeeping, and personal laundry. Although it is a very common benefit today, this was sometimes not covered in the past. Look for the language in terms of who is an eligible caregiver. Does the policy require that the insured uses a caregiver from a home care agency? A number of newer plans allow for independently licensed caregivers, sometimes unlicensed caregivers, and a few others even allow for family members to be paid at claim time. Not so in plans of the past. Also, a 100 percent home care benefit was not regularly sold years ago.
11. Elimination period once in a lifetime. Elimination periods are the most misunderstood part of a LTCI policy. The mainstream policies in the industry currently have elimination period definitions that are very different from the past. Almost all today are once in a lifetime. Many include or offer a waiver of elimination period for home care. Lots of older plans did not include a once in a lifetime elimination period. In addition, some of the old plans that did contain once in a lifetime language also included an accumulation period. That meant that the elimination period would only actually be once if it was accumulated during a certain time frame -- for example, 180 days. Otherwise, it would begin again. Also, most of them were service day elimination periods where you had to get care from a qualified caregiver who would have otherwise been covered under the policy in order for that day to credit the elimination period. Some policies required that the days be consecutive to count.
12. Use it or lose it vs. pool of money. Many contracts of the past were "use it or lose it," which meant that if, for example, you bought a $200 per day benefit and you only used $120 on that particular day, you would lose the other $80. If you had a three-year plan and three years on claim had passed, the policy was finished. Therefore, there was no salvage like there is today. The idea of a "pool of money" plan where all the funds are pooled into one bucket to use wherever needed did not come about until the 1990s.
13. Partnership eligible? This is going to depend on the state you live in and the long term care partnership availability in your particular state. These policies allow for a Medicaid asset disregard. Some states do not yet have partnership plans and others have had them available for many years. If you are in one of the original four partnership states (NY, CA, CT, IN), the policy your client has will be specifically marked as a partnership qualified plan. If you are in a post Deficit Reduction Act state and you have a client who bought a policy after the effective date of partnership in that state with the right type of inflation based on the age they were at the time according to DRA guidelines, they will most likely be eligible for Partnership, as well. Many of the carriers and states have not yet formalized every rule when it comes to this subject. Contact your marketing office for more details.
14. Last but not least -- exclusions. The lists of exclusions on an LTCI policy are mainly to be expected, but there are a few for which to look out. The first would be the mental and nervous exclusion. Commonly, this is viewed as a very big negative. What it means in plain language is that if the insured has a condition in this category -- for example, manic depression -- and cannot get out of bed or feed themselves because they are too depressed, that would not be covered under the policy as a two-ADL-loss. Do not confuse this exclusion with conditions which have an organic cause, like Alzheimer's, Parkinson's or dementia. Those would be covered. Another exclusion to check for would be workers' compensation. Today, so many buyers of LTCI are young and still in their working years. When a policy has this exclusion, the long term care contract would not pay if a person were to get hurt on the job and the workers' compensation benefit kicked in. Lastly, look for an international coverage exclusion. Many consumers have family overseas and are interested in receiving care if and when it is needed outside of the United States. This was a common exclusion in LTCI policies of the past. Of course, don't forget to do some research on the insurance carrier, as well. Take a look at the history of that company, the ratings, past rate increases, claims practices, and any other information you might be able to access. Reviewing all of the specific policy language of an in-force long term care insurance contract can be a bit tedious, but will give your client some vitally important assistance going forward. The educated advice you can give regarding whether they should hold on to that policy, add to it, or replace it altogether will lead to an extremely satisfied customer. One who could very well turn into a terrific lead source for years to come.
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