The types of benefits offered by the insurer and the various choices that purchasers of LTCI make have a direct impact on the cost of a policy. Let us review the elements that have the greatest impact on the amount of the premium:
· The larger the daily or monthly benefit amount, the higher the premium. There is generally a direct proportional relationship.
· The larger the lifetime maximum benefit (or the longer the benefit period), the higher the premium.
· The longer the elimination period, the lower the premium.
· Comprehensive policies are more expensive than those that cover only facility care or only home care. In a comprehensive policy, the higher the percentage of the facility benefit that is paid for home care, the higher the premium.
· An automatic inflation protection option increases the premium. A simple rate option is cheaper than a compound rate. There may or may not be a charge for adding a guaranteed purchase option to a policy.
· An optional non-forfeiture provision adds to the premium.
Other factors also affect the premium amount. As a general rule, any policy provision that increases the likelihood that the insurer will pay benefits or increases the amount of benefits it will likely pay contributes to a higher premium. Thus a policy with less restrictive benefit triggers would tend to be more expensive than one with more rigorous triggers, and a policy that covers items such as respite care, transportation, and informal caregiving tends to cost more than one that does not. Likewise, the premium of a disability or indemnity policy is usually higher than the premium of a comparable reimbursement policy.
While the insurer’s basic policy design and the policy options the insured selects directly affect the policy’s premium, there are several other factors that have an impact on the policy’s cost: the age of the applicant, the health of the applicant (in some cases), and any discounts the applicant may qualify for.
Age has a substantial impact on premium. The older a person is at the time she applies for an LTCI policy, the higher her premium. Keep in mind, the premium is designed to remain the same over the life of the policy -- that is, the premium is not automatically increased as the insured's age increases. (Nevertheless, except for the few noncancellable policies, there is no guarantee that a premium will not increase.
Health -- Individual Insurance
All insurers conduct underwriting of applicants for individual LTCI policies -- that is, they seek information about the applicant and, based on that information, decide whether to offer him coverage, and if so, on what terms. Most commonly, the insurer simply has the applicant answer questions about his current physical condition and health history on the insurance application. In some cases the insurer may request a report from the applicant's physician or arrange for a telephone interview or an in-person assessment.
How companies use information about an applicant's health differs. Many insurers take health into account only in deciding whether to accept or decline an applicant; they do not consider it in setting premiums for those they do accept. Other insurers place accepted applicants into two or three risk classes based on health and charge these classes different rates. The majority of applicants fall into the standard risk class, but the healthiest people are placed in a preferred risk class and the less healthy may be accepted into a nonstandard (or substandard) risk class.
Health -- Group Insurance
Most long-term care insurance in the United States is bought by private persons for themselves (and sometimes a spouse), without any involvement by their employers. But employer-sponsored coverage is the fastest growing segment of the LTCI market.
There are two approaches to employer sponsorship of long-term care insurance. One is group insurance, in which the employer owns a group policy that provides coverage to those employees who enroll in it (and sometimes spouses, other family members, and retirees). The other approach is worksite marketing of individual insurance, in which the employer sponsors the sale of individual LTCI policies to employees. Each participating employee purchases his or her own policy and is responsible for paying the premium. The employer is not a party to any insurance contract (although the employer may facilitate the purchase through payroll deductions.).
Each LTC insurer establishes its own criteria for evaluating the health of group applicants. An insurer may issue group policies in many ways depending on the group being insured:
· Guaranteed issue – the insurer accepts all applications for group coverage. This method can expose the insurer to adverse selection. Guaranteed issue is typically used only for large employers with many employees -- and the insurer will typically impose a minimum level of participation.
· Modified guaranteed issue – the insurer asks applicants a few basic questions, such as the use of long-term services in the recent past, current inability to perform ADLs or cognitive impairment. Applicants who indicate such conditions may be denied coverage while the vast majority of employees will be covered.
· Short form (or simplified) underwriting – a more extensive questionnaire covering medications, medical history, etc. is used for underwriting purposes. Applicants who have reached a certain age may also be more strictly scrutinized.
Full underwriting – insurers use a system similar to individual LTC, a long questionnaire of medical history, physician’s statements and possibly physical or cognitive exams.
As a general rule, the smaller the employee group, the less likely an insurer is to offer guaranteed issue. If underwriting is conducted, the smaller the group, the more rigorous the underwriting.
As discussed above, some insurers offer a premium discount to applicants who qualify for a preferred risk class. Some individuals may be eligible for other discounts.
A group discount normally applies to the premiums paid by those covered by an employer-sponsored group policy. Some insurers offer discounts to those who purchase individual policies through worksite marketing. In both cases the discount may be extended to employees' spouses and other family members. Discounted group coverage or discounts on individual policies may be offered to members of non-employee groups, such as service clubs (Rotary or Lions, for instance), college alumni associations, or customers of a bank.
Spousal and Family Discounts
Many insurers offer a spousal discount ranging from 20 to 40 percent if both husband and wife purchase an LTCI policy, based on the assumption that married people can care for each other and so are less likely to file claims for paid long-term care services. Some insurers in some states extend a spousal discount to same-sex couples, other committed couples not legally married, and/or siblings living together.
There is considerable variation by company and state in this area. Some insurers require that both spouses obtain coverage; others require only that both apply for coverage and grant the discount even if one of them is declined. Many companies grant a smaller discount to any married person, even if her spouse does not apply for or purchase LTCI coverage. Some states do not allow any discounts for married couples; other states allow insurers to grant discounts to married person, but they may not require that both spouses be insured. Most companies maintain the spousal discount even if the couple divorces or one spouse dies.