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2005-02-01 09:22:00

LTC policies’ language is so confusing... what does it all mean?

: The language of long-term care policies is enough to confuse even the most savvy of consumers.  What do all of these terms mean?

ANSWER: Last month’s article should have helped in explaining the differences between qualified and non-qualified policies.  Perhaps this article will explain a few more of the terms.The most important element of any Long-Term Care policy is its daily benefit.  As you know, this is the amount of money that is available on a daily basis to pay for the care you need.  If your policy is a non-indemnity policy, you will have up to this many dollars available for the care.  If your policy is an indemnity policy, you will receive this much money for each day of care.  It will be up to you to negotiate and pay for the costs of care out of the money you receive.  Whatever you have left is yours to keep.  You not only get what you pay for, but the money comes to you and not to the nursing home or residence providing the care.  By them only knowing that you will be paying for the costs yourself allows you a greater degree of negotiation on the cost of the care.  They never know and never need to know the benefits of your policy.  The first thing you do therefore when buying a policy is to get as much in daily benefits as you will need to cover all or most of the cost of the care when you need it.  If you are 10 or more years away from the ‘window of use’ (the time, actuarially speaking, that the probability first exists for this type of care… is around the age of 83), you will most definitely want to factor in inflation.  For instance, today’s costs for long-term care in the 6 counties in which I work (Sedgwick, Sumner, Harvey, Cowley, Butler and Reno) varies from $80 per day (for simple, personal, custodial care and assisted living), to $150 per day (for skilled, heavy or critical care).  In 10 years, with 3 1/3% inflation (the rate this type of care has averaged increasing over the last 30 years), these costs will vary from $110 to $200 per day.  In 20 years these costs will vary from $150 to $280 per day.  In 30 years (meaning you are in your mid-50’s now), these costs will vary from $200 to $400 per day.  That could be as much as over $12,000 per month.  It’s hard to believe isn’t it?  What is even harder to imagine is, what if you had no policy and had to pay for the cost of this care out of your monthly income or assets?  Once, based upon your current age, you find the daily benefit number that makes sense, either with an inflation rider (be sure it is 5% compounded annually), or without, then the next most important thing is the benefit period.  This is the amount of time the daily benefit will be payable.  If possible, you will always want to get a lifetime benefit period.  This means the daily benefit will be payable for life.  If you cannot afford a lifetime benefit period (always check to see what the cost is for lifetime versus a shortened benefit period of say 3, 4 or 5 years), then you buy as long of a benefit period as you can.  As you know from previous articles, the average time a man needs some form of long-term care is over 3 years.  The average time a woman needs some form of long-term care is over 4 years.  You will find the younger you are when you apply, the more insignificant the difference in premiums are for a lifetime benefit period versus a shortened benefit period of say 5 years.  If you have a shortened benefit period, it means that the policy will only pay its daily benefit for this period of time.  When that time is up, the policy is through paying.  There is however a feature most of the better policies have which can assist with shortened benefit periods.  It is called the ‘restoration of benefits’ provision.  What it means is that if you are receiving benefits under the policy, and prior to the expiration of the benefit period, your doctor certifies that you no longer need to receive benefits under the policy, and you are then benefit-free for a period of 6 months, the benefit period is restored to its original length of time.  There is generally no limit to the number of times this can happen.  In many cases, it would be possible for the person to rehabilitate and no longer require benefits under the policy; thus this provision would be most valuable.  In other cases of course, the affliction, injury or illness may be such that it is progressive and care would be needed from the onset.  Again, you buy a Long-Term Care policy to protect and preserve income, assets, independence, peace of mind, and those and that of your family.  Unless it is absolutely necessary for the sake of making the budget work on buying a policy, do not fall into the trap of trying to figure out how long you will need benefits.  We all know plenty of folks who have needed care for only a few weeks.  We should also know many folks who have needed long-term care for many years.  Buying a lifetime benefit period removes all possibilities of benefits ‘running out’.  An analogy might be buying homeowner’s insurance through only April 15th every year.  There are lots of things that can happen after this.The next thing you want on your policy, given the ability to afford, is a guarantee to be able to get the care you need at home, as well as in a nursing home or assisted living residence.  This is called a Home Health Care Rider.  In the years I have been working in the long-term care arena, I have yet to deliver a policy where both spouses say, “I can’t wait until we need to go a nursing home.”  What they do say is “This is going to be very good if we need it, but you can bet we are going to do everything we can to stay at home, for as long as possible… first!”  We all want to stay at home.  I do not however recommend buying a Home Health Care policy only, as no one knows what the affliction, illness or injury might be that causes a need for long-term care.  Much of the care one might need can be received at home, but the heavier care (Skilled Care, Critical Care, and Heavy Care) would be cost prohibitive to receive at home.  That could run as high as $15,000 per month or more, and that is today’s costs.  Once you qualify for benefits, you will want the choice to decide where you want to receive the care.  By adding a Home Health Care Rider to your policy, you receive this choice.  This makes your policy into a ‘Comprehensive’ policy… the best kind.If you get one of the better Home Health Care Riders included with your policy, you will see that it will not only pay for professional services (that care rendered by a licensed practitioner such as a nurse, CNA, CMA, therapist, etc.), but that it will also pay for basic services (someone to come in an cook, clean, shop, run errands, provide companionship, etc.).  These basic services are also called ‘homemaker’ services in some policies.  As you can see, these are things you normally would not think of, but could prove to be most important at the time of need.  The next most important item is to get a zero-day elimination period.  An elimination period is the number of days that must expire before benefits are payable.  Some agents will tell you that you have coverage under Medicare and your Medicare Supplement for the first 100 days.  This is untrue most of the time.  Medicare only pays for the first 20 days of Skilled Care.  They pay nothing for the lower levels of care.  Only 22% of all people in a nursing home, licensed for all levels of care, are receiving Skilled Care.  This makes sense.  Generally as one’s condition worsens, he or she needs more care.  Skilled Care (that care administered in the presence of a Registered Nurse 24 hours a day) is not the type of care most folks need at the onset of an illness or affliction.  If Skilled Care is being received, and all of the conditions have been met, it may be possible for Medicare and your Medicare Supplement to pay up to another 80 days, past the initial 20 days that Medicare would cover.  So, if you buy a 100-day elimination period on your policy, and you have no coverage under Medicare or your Medicare Supplement, you will be paying the entire bill.  I do not believe you will be too tickled with your policy when you realize you have paid on it for many years, and then, before it pays a dime, you have to pay for the first 100 days.  If your policy is a $100 per day policy, that’s $10,000!  I’ve said it for years.  You will never save enough in premium on an elimination period to warrant the exposure you will have.  Under no circumstances would you ever want to get a policy that the elimination period had to be satisfied more than once in a lifetime.  This could be a financial nightmare.  These are the most important elements of any Long-Term Care policy.  Once you have these taken care of, you can then look at the other options that are available, such as a Paid-Up Survivor Rider (where after a certain number of years of owning the policy, usually 4 or 5, if a spouse should die, the policy is paid up for the life of the surviving spouse), or a Return of Premium Rider (where after a certain number of years, all or most of the premium paid in is returned less any benefits paid out).  These can be very beneficial, but most certainly come after the most important elements about the policy are taken care of which have been detailed above.  Some agents might spend a lot of time talking about other benefits such as a bed reservation benefit, hospice care, respite care, adult day care, etc.  These are nice to have but I liken them to the car dealer throwing in floor mats or undercoating on the car you just purchased.  They are not the main reasons why you buy the car.  These are not the main reasons why you buy a policy.  Furthermore, most of the better policies have these things as standard issue on the master policy anyway. Next month we will talk about risk management and how it works with Long Term Care.