Long-Term Care Policy Design (con’d)
Covered Settings and Services
Once the insured meets the benefit trigger, the LTCI policy will cover only services in certain settings. Most LTCI policies address services provided in one of three settings:
· Facility-only policies pay benefits only for care in a nursing home or other residential facility.
· A few insurers offer policies that cover only home health care, or only home care and community-based care.
· Comprehensive policies cover both nursing home care and home healthcare. Most also pay benefits for care provided in assisted living residences and other residential settings and for a variety of home-based and community-based services, such as adult day centers. This is the most common policy type.
Some comprehensive policies pay the same benefit amount for facility care and home care, while others pay different amounts. Most policies use the same benefit triggers for facility care and home care, a few use different triggers. And of course, different insurers may choose to cover different types of services within the approved settings. Among the services commonly found in some policies are:
· Homemaker services and transportation. A policy may pay for help with household chores and transportation to medical appointments and shopping. Some policies pay for these services only if other home healthcare services (such as those provided by a home health aide, nurse, or therapist) are needed. For other policies, the only requirement is that a benefit trigger be met.
· Informal care giving. Some policies pay a benefit when a family member or other informal caregiver provides care to the insured. Others pay for the training of an informal caregiver.
· Respite care. Most policies cover paid services needed for a short period so that a family caregiver can take a break. For respite care benefits to be paid, the insured must meet a benefit trigger. A policy may cover a certain number of days of respite care per calendar year (typically from 14 to 30), or it may pay up to a certain dollar amount per year.
· Bed reservation. Because of the high demand for beds in nursing homes and rooms in assisted living residences, a person can lose his place while he is in the hospital or away for some other reason unless he continues to pay for it while he is gone. Many policies pay the facility to hold the insured's bed or room during his absence. Some policies pay this benefit only if the insured is away for a specified reason (such as medical care); others pay regardless of the reason for the absence. (An insured might want to spend time with his family, for example.) Benefits are usually limited to a specified number of days (such as 20 or 50) per calendar year.
· Care coordinator. A care coordinator is a specially trained nurse or social worker who works on behalf of the insured to see that she receives the best care possible and gets the most out of the benefits her policy provides. For example, care coordinators can identify the best local providers of the services the insured needs or send regular care reports to family members. A policy that pays for a care coordinator is especially desirable when the insured has no relative who lives nearby and can look after her welfare. Some insurers maintain networks of contracted care coordinators and provide their services to insureds free of charge. In other cases, the insured hires a care coordinator himself, and the insurer pays benefits to cover the cost.
Some policies also pay benefits for durable medical equipment (such as wheelchairs), and medical alert systems. Many policies include an alternate plan of care provision (also called an alternative care benefit, supplementary care benefit, emerging trends benefit, and other names). Under this provision, the insurer may pay for a variety of goods and services not specifically covered by the policy. For example, an insurer might pay for home enhancements such as bathroom alterations, handrails, and ramps to enable a person to safely remain at home instead of going into a nursing home. Or an insurer might cover long-term care services that are not mentioned in the policy because they had not been developed when it was written. In this way an alternate plan of care provision makes a policy more flexible and helps keep it from becoming obsolete. Generally, for benefits to be paid for an item not specified as covered in the policy, three parties must agree -- the insured, the insured's physician, and the insurance company.
Even if benefit triggers are met, an LTCI policy will not pay benefits if long-term care results from a cause excluded by the policy. Such causes may include alcohol and drug abuse as well as illnesses or medical conditions resulting from participation in a felony, attempted suicide, war or service in the armed forces, or aviation if the insured is a not a fare-paying passenger. Mental or nervous disorders (except cognitive disorders of an organic nature, such as Alzheimer's disease) were previously often excluded, but this exclusion has become less common and is not permitted in several states.
Some policies limit the payment of benefits for preexisting conditions. A preexisting condition is a medical condition for which treatment was received or recommended within a certain period before a policy was purchased. This period is normally six months or less, and typically benefits are not paid for a preexisting condition for the first six months that a policy is in force. It is becoming much less common for insurers to exclude preexisting conditions in individual LTCI policies. Instead, they simply require applicants to disclose such conditions and underwrite the policy accordingly. In group insurance, in which there may be no underwriting of individuals or only very limited underwriting, preexisting condition exclusions are still used.
Policies also generally exclude services for which no charges were incurred. For example, if Medicare or another government program covers a service and the insured pays nothing, she cannot submit an insurance claim for the service.
LTCI policies express benefits as a fixed dollar amount per day, week or month. There are three models in terms of how the daily or monthly benefit is paid:
· reimbursement (or expense-incurred),
· indemnity, and
· disability (or cash).
The reimbursement (or expense-incurred) model is the most common. In this model, the insured is reimbursed for the actual expenses he incurs that are covered by the policy, up to the daily or monthly benefit amount. In other words, the daily or monthly benefit amount serves as an upper limit on benefits, and for this reason it is sometimes referred to as the maximum daily (or monthly) benefit.
Marianne has a reimbursement LTCI policy with a daily benefit of $200. For several months she receives home healthcare services costing $80 daily, and the insurer pays her $80 per day. Later she enters a nursing home where care costs $220 per day, and the insurer pays the full daily benefit, $200.
In the other two models, the full daily or monthly benefit amount is paid regardless of the actual amount of covered expenses incurred. Under the disability (or cash) model the benefit is paid when the insured meets a benefit trigger whether he is actually incurring expenses for long-term care services or not. Under the indemnity model the insured must both meet a benefit trigger and be receiving services covered by the policy for benefits to be paid.
Norma has an LTCI policy that covers facility care on an indemnity basis and has a daily benefit of $200. For several months she receives nursing home care costing $150 daily; later she needs more care, and the daily nursing home charge is $180; still later she receives care costing $220 per day. The insurer pays the daily benefit amount of $200 for all days on which Norma meets a benefit trigger and is receiving services covered by the policy, regardless of the cost of those services.
Oliver has an LTCI policy that pays for home care on a disability basis and has a daily benefit of $150. For several months he meets the physical impairment benefit trigger of the policy, but instead of receiving paid services, he is cared for by his daughter. Later he receives paid home healthcare services costing $80 daily, and still later he receives home care costing $125 per day. The insurer pays the daily benefit amount of $150 for all days on which Oliver meets a benefit trigger, whether he is receiving paid services covered by the policy or not, and regardless of the cost of any services may he receive.
Daily, Monthly, and Weekly Benefits
Many policies (especially newer ones) pay a monthly benefit instead of a daily benefit, and some policies pay a weekly benefit. A monthly or weekly benefit allows for greater flexibility in meeting expenses.
Joyce has a reimbursement policy with a daily home care benefit of $100. Her family provides much of her care, so on Saturdays and Sundays she needs no paid services. On Mondays, Wednesdays, and Fridays a home health agency provides services costing $150, and on Tuesdays and Thursdays the agency provides services costing $75. Her total expenses for the week are $600, but because she can receive no more than her daily benefit of $100 for anyone day of care, she receives $450 in benefits ($100 for Monday, Wednesday, and Friday, and $75 for Tuesday and Thursday) She must pay the other $150 out of her own pocket.
Now let us assume Joyce has a reimbursement policy with a weekly benefit of $700 (as opposed to $100 per day). Her weekly expenses fall below this amount, so she receives $600 in benefits.
A monthly or weekly benefit may cost slightly more than an equal daily benefit, but it can enable an insured to cover more services for the same state benefit.
By law, all tax-qualified LTCI policies must be either guaranteed renewable or noncancellable.
If a policy is guaranteed renewable, the insurer must renew the policy (that is, continue it year after year) as long as the insured pays the premiums. The insurer may not decline to renew because of the insured's age, health, claim history, or for any other reason. Furthermore, an insurer may not single out policies for a premium increase. An insurer may increase premiums only when it makes the same increase on all the policies of a certain class or form number that have been issued in a state, and only with the approval of the state insurance department. Approval is generally granted only when the claims experience of the class has been worse than projected. In short, an insurer cannot raise an individual policy’s premium; it can only raise the premiums of an entire actuarial class.
A noncancellable policy, like a guaranteed renewable policy, cannot be terminated by the insurer unless the insured stops paying premiums. But unlike with a guaranteed renewable policy, a noncancellable policy's premium can never be increased under any circumstances. Because of this lack of flexibility, insurers must charge higher premiums for these policies. Noncancellable LTCI policies are rare and disappearing.
The NAIC Models
The National Association of Insurance Commissioners (NAIC) has developed two models for the regulation of long-term care insurance: the Long-Term Care Insurance Model Act and the Long-Term Care Insurance Model Regulation. The act and the regulation have been adopted, in whole or in part, by most states. The key points related to policy provisions are the following:
· Certain terms such as "home healthcare services," "personal care," and "skilled nursing care" may be used in an LTCI policy only if they are defined as specified by the NAIC act or regulation
· Eligibility for benefits cannot depend on the insured having been previously hospitalized or having previously received a higher level of long-term care.
· Only certain exclusions are allowed. These include preexisting conditions and the other exclusions discussed earlier.
· If one policy replaces another, any exclusion of preexisting conditions must be waived to the extent that similar exclusions were satisfied in the earlier policy. For example, if the new policy excludes conditions for which treatment was received within six months before the policy goes in force, this exclusion cannot be enforced if the insured has already fulfilled a six-month period for the previous policy.
· A policy must offer an inflation protection option. An added premium charge for inflation protection is permitted.
· A policy may cover nursing home care only, but it cannot cover only skilled care in a nursing home. All levels of care must be covered. Nor may a policy provide significantly more benefits for skilled care than for other levels of care received in a nursing home.
· The only allowable renewal provisions are guaranteed renewable and noncancellable.
· A policy must have a third-party notification of lapse provision.
· A policy must offer a non-forfeiture option.
· A policy must have an incontestability clause. This clause limits the insurer's right to contest the policy based on misrepresentations made in the application.
As stated above, most states have adopted the NAIC models, but some have adopted them only in part and others not at all. And different states have adopted different versions. (Several versions have been developed over time by the NAIC.) Consequently, not all the rules listed above apply in every state. Also, in many regulatory areas the NAIC models provide only general guidelines within which each state must develop its own specific rules. Finally, some states have enacted additional laws and regulations governing long-term care insurance that are not based on the NAIC models. For example, some states require that certain types of care be covered (for example, home care as well as nursing home care), and some states mandate minimum benefit amounts and prohibit certain policy provisions. NAIC models have created some degree of standardization of long-term care insurance, there are nonetheless many differences.