What every agent should know about elimination periods

By Stephen D. Forman (LTCA)

Long Term Care Associates, Inc.

In national studies of claim denials, one of the leading causes turned out to be nothing more than a misunderstanding over first satisfying the elimination period. They are risky business and contribute to bad press.

For the Anglophiles among you who keep up with Dr. Who, you may appreciate why I wanted to title this piece after Amelia Pond, aka "The Girl Who Waited." Poor Amy — in one episode, she patiently waited 36 years for the doctor to return and save her.

What better way to introduce today's topic: waiting periods. Where some think of elimination periods as budget-conscious deductibles, it's been my experience that families on claim grow frustrated and betrayed when any obstacle is placed between them and their benefits.

The impetus for this article grew out of a recent review of sales trends. I was surprised by the frequency with which monitored agents were choosing service day elimination periods over calendar day. Second, I was disheartened that more agents were not recommending zero-day elimination periods instead of 90-day. Allow me to justify both positions.

In the first case, it’s my opinion that the premium savings between 90 service days and 90 calendar days simply doesn’t warrant choosing the former.

Let's take a popular (and typical) plan for illustration purposes: Our rate yields $1,283 per year for a plan with 90 service days, versus $1,311 per year for a plan of 90 calendar days — a difference of just $28 per year.

Now, I want to make sure you understand in real terms how these two methods of counting play out. Since every serious LTCI specialist also owns a copy of the 2012 AALTCI Sourcebook, let’s review from its treasure trove of claims data.
  • Fact: 50 percent of new claims last year were opened for home health care (HHC).
  • Fact: The average number of HHC visits last year was 3.5 per week.
  • Fact: On a 90-calendar-day basis, the average HHC claim — in fact, every HHC, ALF and NH claim — will be met in 90 straight days (three months).
  • Fact: On a 90-service-day basis, the average HHC claim will be met in about 28 weeks (seven months).
During those first 90 calendar days, the hypothetical HHC agency would’ve sent their caregiver out 3.5 times per week, for a total of 26 visits. Your policyholder would’ve been on the hook for those charges — and for easy figuring, let’s say each is equal to the maximum per day the policy would’ve paid (or $150/day) — for a total outlay of $3,900 during her elimination period.

On the other hand, during the first 90 service days, the HHC agency would’ve sent their caregiver out 90 times. Your policyholder won’t satisfy her elimination period until all 90 visits have transpired, and will have paid $13,500 during her elimination period.

And for this, you’re willing to save $28 per year?

Second issue: let’s assume I’ve just talked you into 90 calendar days for this 43-year-old applicant. Cool! There’s just one problem. Zero days would’ve been much better.
This time, I’m going to start with a quote from a different sample carrier: $1,261 per year for 90 days versus $1,614 per year for zero days. At first blush, this looks huge, right? After all, this time it’s a difference of $353 per year. But the problem isn’t on the front end; it’s on the back end.

Over the next 40 years (through age 83), your client will save $14,120 by taking a longer elimination period. But once your client goes on claim, any care incurred during those first 90 days is her responsibility. Assisted living or nursing facility care at $490 per day (accounting for the 3 percent inflation benefit) equals $44,100 in forfeited benefit.

Looking at this another way, saving just $353 per year by taking a longer elimination period, your client would have to live until age 168 to make up the difference in benefits she’s forfeiting!

Faced with these revelations, one agent posed the following: “Is it OK to sell a zero-day elimination period for HHC and 90 service days for NH and ALF?”

Before you get too comfortable, I don’t think it’s as clear cut as we accept. Once again, I’ll tell you why.

Some history

As an industry, we've sold an overwhelming amount of one particular carrier's product which built in zero-day elimination periods for HHC. Furthermore, days on which services were received offset the elimination period for NH and ALF (if care coordination was used). Good deal.

But with this carrier's transition to its current product, the zero-day elimination period for HHC is no longer built-in — it’s now a rider. Part of what prompted today's article was the realization that producers are not necessarily selling the rider, presumably to save money.

But for argument’s sake, let’s assume the agent asking the hypothetical question above has sold the zero-day elimination period for HHC rider and chosen 90 service days for NH and ALF. Is there anything egregiously wrong with that?

After all, it’s still true that days on which payment is made for HHC count against the NH and ALF elimination period. And what’s more, if someone is confined in a NH or ALF, is there any material difference between service days or calendar days? After all, the “service” you receive in a nursing facility consists of residing there overnight, day after day.

So, why not just save $28 a year? Here’s why:
  • Fact: 80 percent of claimants never transition between care settings.
  • Fact: 72 percent of claimants initiate with HHC services and that’s all they ever use.
  • Fact: 44 percent of claims last less than one year due to short-term recovery, sudden terminal illness and single-use, non-caregiving benefits (e.g., equipment, training, etc.).
The upshot is that you cannot devise an LTCI plan based on the myth that care follows a path of HHC, assisted living, nursing facility. It doesn’t play out like that. Most care will start and end at home: payment must start on day one for our policyholders.
Care received in the nursing home or assisted living typically starts there, i.e., it didn’t transition there from HHC. So, let me describe a typical real life claim.

What happens if someone goes into a nursing facility for rehab after a car accident, stroke or a fall from a ladder, going into and out of the hospital for multiple surgeries and eventually coming home eight weeks later? With a 90-calender-day elimination period, there’s no uncertainty. In 90 days, come hell or high water, it will be satisfied.

With a 90-service-day elimination period, who the heck knows how many "service days" were accumulated in that scenario? Or how many are left?

Let’s return to Amy Pond again. At the end of the episode, she is re-united with her long-lost husband after 36 years. This is a terrific place to pick up our story. Why? Because as agents, we too often forget that the clear-eyed and lucid 50 year old sitting across from us will one day grow into an 86-year-old claimant, her policy covered by dust and cobwebs in a drawer.

When the time comes, it will be her spouse or children calling the office to ask how to open a claim. They'll inquire about benefits, and one of the first questions out of their mouths is always, “How soon will Mom receive a check? I have to wait how long?”

In 10, 20 or 30 years, no one ever remembers the elimination period, and no one cares any more about saving pennies. It’s a time of crisis, and they just want the money to flow.

A colleague of mine offers this example: "After 180 days, my neighbor's husband still hadn’t satisfied his 90-service-day EP. His wife was providing care on most days and had an aide come in twice a week. Voila! She was really frustrated and discouraged and felt like the insurance company had pulled a bait and switch on her."

This policyholder felt scammed. And no wonder. In national studies of claim denials, one of the leading causes turned out to be nothing more than a misunderstanding over first satisfying the elimination period. They are risky business and contribute to bad press.

Insurance is fundamentally the sale of certainty to replace uncertainty. A calender-day elimination period is fixed, certain. A service-day elimination period is uncertain and provides no reassurance to your policyholder. She cannot project how long it will last, or how much she will spend. Where is the peace of mind in that? For the pittance it saves, why sell it? It doesn’t provide the promise of insurance. I will go one step further.

Because the actual-to-expected claims utilizations for zero-day elimination periods are turning out higher than expected, I predict this is one of those benefits, like lifetime benefit periods, that your clients will have to grab while they can. I wouldn't be surprised if it vanished within the next five years.

I know there's many pathways to a successful LTCI plan, and no two circumstances are the same. Obviously, one runs the risk of painting with an overly broad brush with an article such as this. But I hope I've encouraged you to think anew about waiting periods and, if nothing else, to check out Dr. Who, Saturdays on BBC America.

Good selling!