Chapter 11 - Senior Needs

Medicare Overview

• Medicare is a federal health insurance program that was originally designed to provide hospital and medical insurance primarily for people 65 or over. Program has been expanded to provide coverage to persons of any age who have been:

  • Diagnosed with chronic or permanent kidney failure, or End Stage Renal Disease

  • Received Social Security Disability Income for at least 24 consecutive months

• Medicare is run by the Centers for Medicare & Medicaid Services (CMS), a separate department within the Department of Health and Human Services Admin, and is responsible for reviewing and approving Medicare claims.

• Originally, eligibility for Medicare coincided with eligibility for Social Security retirement benefits. Medicare eligibility remains at age 65, even though the Full Retirement Age for retirement benefits has increased.

Primary vs. Secondary

• If an individual is age 65 or over and continues to work, Medicare is usually the secondary insurer to any employer group health plan the individual participates in.

• A Group Health plan with 20 or more employees is primary to Medicare and pays first. If employer’s plan does not pay all of one’s expenses, Medicare will pay secondary benefits for Medicare covered services to supplement the group plan benefits.

• Employers who have 20 or more employees are required to offer the same health benefits and under the same conditions to employees and spouses age 65 or over, as they offer to younger employees and spouses.

Medicare Parts

• The “Original” Medicare program consisted of two parts, Part A & Part B. Both parts are provided by the government for basic hospital and medical expense coverage, including amounts that the recipient must pay out-of-pocket, such as deductibles and coinsurance.

• There are currently four parts of coverage available under Medicare:

  • Part A - Hospital Insurance provided by the federal government

  • Part B - Medical Insurance and outpatient expenses provided by the federal government

  • Part C - Medicare Advantage plan, combines Parts A & B into a managed care plan offered by private insurance providers

  • Part D - Prescription drug coverage offered by private insurance providers

Medicare Enrollment

• Once eligible, individuals are required to enroll in Medicare Parts A & B for coverage to begin. The following enrollment periods apply:

• Initial Enrollment Period

  • Lasts 7 months and begins 3 months before the month of an individual’s 65th birthday and ends 3 months after the month following when the individual turned 65. The actual month of eligibility is the month of the individual’s birthday.

• General Enrollment Period

  • Provides a make-up period from January 1 to March 31 each year for those who did not enroll in Part B when they first became eligible. For individuals enrolling during the general enrollment period, coverage begins on July 1.

• Medicare Open Enrollment

  • Occurs every year October 15 - December 7 and provides all individuals the change to make changes to their Medicare coverage if needed

• Special Enrollment Period

  • Begins when a person past age 65, who was covered by an employer-sponsor group health plan, is no longer covered by the plan (whether the person elects COBRA continuation or not). This period lasts 8 months and allows an individual the opportunity to enroll in Medicare Part B without incurring a penalty for failing to enroll at age 65.

Part A - Hospital Insurance (Inpatient)

• Medicare Part A is financed by payroll and FICA contributions and is premium free to eligible individuals who quality through Social Security, Railroad Retirement, or government employment. Individuals over 65 who do not qualify may receive benefits for Part A coverage by paying a monthly premium.

• Part A provides coverage for medically necessary inpatient hospital related charges, skilled nursing, home healthcare, and hospice. Part A claim payments are made directly to provider for covered services.

Part A Benefits & Out-of-Pocket Expenses

• Medicare Part A requires a deductible before benefits are payable. Once deductible is met, benefits are payable as specified based on the benefit period.

• Benefit Period

  • A benefit period begins the first day the insured enters the hospital after being enrolled in Medicare and ends once the insured has been out of the hospital for 60 consecutive days.

• Inpatient Hospitalization

  • Part A provides coverage for up to 90 days per benefit period. Medicare will pay 100% of covered charges for days 1-60. The insured will be held responsible for a specified daily copayment for days 61-90 and Medicare will pay the balance. If the insured is hospitalized beyond 90 days in a benefit period, 60 nonrenewable lifetime reserve days are available for coverage with a higher daily copayment.

  • Once the insured is out of the hospital for 60 consecutive days, a new benefit period begins which renews the 90 days of coverage and requires a new deductible. The lifetime reserve days do not renew. If an insured uses the lifetime reserve days and is hospitalized longer than 90 days in a benefit period, the out-of-pocket expense for insured is 100%.

• Medicare Part A includes the following coverage:

  • Semiprivate room & board

  • Operating room costs

  • Prescription drugs including anesthesia

  • Miscellaneous hospital services and supplies

  • Blood transfusions after the first 3 pints of blood

• Mental Health Care

  • Medicare Part A will cover inpatient mental health care on the same basis as inpatient hospital care.

• Skilled Nursing Care

  • Medicare Part A provides only limited benefits for skilled nursing care following 3 days of hospitalization. The first 20 days are covered 100%. Days 21-100 are covered except for daily copayment. After 100 days of skilled nursing care, there is no additional benefit from Medicare and the insured pays 100%. Once there is a break from skilled care for 60 consecutive days, the skilled nursing care benefits is renewed.

• Home Health Care

  • Medically necessary care following the release from the hospital, including home health aide services, nurses’ visits, and medical supplies, are covered.

• Hospice Care

  • Pain relief and support services provided to the terminally ill and their family members is covered.

• Blood

  • There is a “deductible” amounting to the first 3 pints of blood administered per calendar year. After the deductible is met, Part A will cover the cost of inpatient blood transfusions for the remainder of the year.

Part B - Medical Insurance (Physicians, Surgeons, and Outpatient)

• Part B is optional and offered to all applicants when they become entitled to Part A either by qualification or paying a premium. All Part B recipients are required to pay a monthly premium. Medicare Part B pays 80% of covered expenses after an annual deductible has been met. The insured pays 20% coinsurance with no maximum out-of-pocket.

• Part B Benefits

  • Medical Expense

    • Medicare Part B covers Physician’s and Surgeon’s services, inpatient and outpatient, and medically necessary outpatient medical and surgical serviced and supplies. Additional coverages include physical, occupational, and/or speech therapy, diagnostic tests, certain durable medical equipment, and medically necessary ambulance or other transportation services. Medicare Part B will also cover kidney dialysis treatments.

  • Preventive Care

    • A one-time extensive “Welcome to Medicare” preventive office visit is covered along with yearly wellness check-ups. In addition, Part B will cover vaccinations and preventive screenings for cancer, as well as other conditions such as depression, diabetes, HIV, and obesity.

  • Laboratory Services

    • Blood tests, biopsies, urinalysis, and other labs, on an outpatient basis.

  • Home Health Care

    • Medically necessary skilled care, home health aide services, and medical supplies for those who are home bound and have not had a qualifying hospitalization to be eligible for coverage under Part A.

  • Mental Health Care

    • Medicare Part B will cover mental health services on an outpatient basis when provided by a health care provider who accepts Medicare payment. An additional copayment or coinsurance may be required if services are provided in a hospital outpatient clinic or department.

  • Outpatient Hospital (Emergency Room/Urgent Care) Treatment

    • Reasonable and necessary services for the diagnosis or treatment of an illness or injury on an emergency basis.

  • Blood

    • The cost of the first 3 pints of blood per year is excluded from coverage under both Parts A & B. After the first 3 pints of blood, Part B will cover the cost of blood transfusions on an outpatient basis, since Part A covers blood transfusions in the hospital after the first 3 pints per year.

• Part B Exclusions

  • Prescription Drugs, unless administered at an outpatient medical facility.

  • Care received outside the United States

  • Routine dental care, including dentures

  • Routine foot care

  • Long-term, including private or custodial nursing care, in any setting

  • Hearing and eye exams

  • Acupuncture

  • Cosmetic surgery

Appeal (Claim)

• If an insured disagrees with a decision on the amount Medicare will pay on a claim, they have the right to appeal the decision

Assignment (Claim)

• The claim is paid directly to the doctor or provider.

• Medicare approved providers have agreed to accept Medicare assignment and must accept Medicare’s payment as payment in full (not including any patient coinsurance).

Certification of Providers (Claim)

• Hospitals and other providers of health care that wish to participate in the Medicare program must be licensed by the state and certified by Medicare.

• Medicare will not pay for any services rendered by a provider that is not certified.

Claim

• A request for payment that is submitted to Medicare or other health insurance when the patient gets items and services that they believe are covered.

Durable Medical Equipment (Claim)

• Certain medical equipment, like a walker, wheelchair, or hospital bed, that is ordered by a doctor for use in the home.

Excess Charge (Claim)

• If one has Medicare, and the amount a doctor or other health care provider is legally permitted to charge is higher than the Medicare-approved amount, the difference is called the excess charge.

Limiting Charge (Claim)

• In Original Medicare, the highest amount that can be charged for a covered service by doctors and other health care suppliers who don’t accept assignment.

Medicare-approved Amount (Claim)

• In Original Medicare, this is the amount a doctor or supplier that accepts assignment can be paid. It may be less than the actual amount a doctor or supplier charges.

• Medicare pays part of this amount and the recipient is responsible for the difference.

Medicare Summary Notice (MSN) (Claim)

• A notice you get after the doctor or provider files a claim for Part A or B services in Original Medicare.

• It explains what the doctor or provider billed for, the Medicare-approved amount, how much Medicare paid, and what the patient must pay.

Nonparticipating Provider (Claim)

• A provider who does not accept assignment.

Participating Provider (Claim)

• A provider who agrees to accept assignment and charges the Medicare-approved charge.

Part C - Medicare Advantage

• These plans are offered by private insurance companies that contract with Medicare to provide both Parts A & B benefits and, typically, prescription drugs. Medicare Advantage plans include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Private Fee-for-Service Plans, & Special Needs Plans. Enrollment in both Parts A & B is required, and premium payments for Part B must be continued. Enrollment in Part C is a substitute for Original Medicare.

• Medicare pays the Medicare Advantage provider a monthly capitation fee to oversee the health care services of the enrolled participants. The services provided by these plans may differ by degree of choice of providers, out-of-pocket expenses, and extra benefits, but all must provide basic Medicare-covered services. Some plans also offer prescription drug coverage.

• Managed Care Organizations, including HMOs & some PPOs, that offer a Medicare Advantage Plan are responsible for coordinating health care services and reducing costs. These plans require subscriber to select a PCP to manage health care needs. The use of network providers, referrals to specialists, and pre-authorization of scheduled procedures are methods used to manage care. Plans offered through PPOs that are not managed care plans do not require a PCP or referrals and allow the subscriber to choose out-of-network providers at high out-of-pocket expenses.

• A Medicare Supplement plan is unnecessary with Medicare Advantage. Sale of a new Medicare Supplement plan to a Medicare Advantage enrollee result in automatic disenrollment from Medicare Advantage.

Part D - Prescription Drug Benefit

• The Medicare Prescription Drug, Improvement, and Modernization Act, also known as the Medicare Modernization Act (MMA), established a voluntary prescription drug program known as Medicare - Part D. These plans are offered by private insurers.

• Under the provisions of Part D offered by insurance companies, anyone entitled to or enrolled in Part A and/or Part B of Medicare may enroll in a voluntary prescription drug program. Beneficiaries must enroll in a standalone plan with a participating Medicare Part D Prescription Drug Provider (PDP) or a Medicare Advantage plan that offers prescription drug coverage integrated with medical coverage.

• Individuals enrolled in the standalone plan from a PDP will have to pay a monthly premium, an annual deductible, and copays. Medicare prescription drug coverage and premiums vary based on income and between insurers approved to offer prescription coverage.

• Once insured has paid the deductible, a copay will apply until the out-of-pocket exceeds a certain amount. These limits change annually. Once the limit is reached, the Part D beneficiary enters the “donut hole” which is a gap in coverage. During this gap, the beneficiary will receive a discount on prescription drugs, but must meet an additional out-of-pocket limit. Once beneficiary reaches the limit, catastrophic drug coverage kicks in automatically, and the plan will pay 95% of remaining drug costs until the end of the year. This cycle repeats each year:

  • Deductible > initial coverage with copays > coverage gap (donut hole) > catastrophic coverage

• Formulary

  • The grouping of prescription drugs under Medicare - Part D. A formulary is a listing of prescription drugs that are covered under Part D, the insurance plan.

  • Only payments for formulary drugs will count toward benefit limits.

Medicare Supplement Insurance (Medigap)

Purpose

• Medicare supplement plans, often referred to as Medigap, are private insurance plans that are designed to supplement Medicare coverage and fill in the gaps in Original Medicare. These plans pay all or some of the Medicare deductibles, copayments, and coinsurance.

• In order to purchase a Medicare Supplement, an eligible individual must have Medicare Parts A & B. A separate premium payment is required or the purchase of a Medigap policy. As long as the premium is paid, the Medigap policy is guaranteed renewable, or automatically renewed each year.

• Medigap policies are “standardized” and must follow federal and state laws. The front of a policy must clearly indicate that it is ‘Medicare Supplement Insurance.’ The standardized policies that insurers offer must provide the same benefits, but the premiums may vary.

Open Enrollment (Medigap)

• A person 65 or older may also purchase a Medicare Supplement by paying the necessary premium.

• The Medigap open enrollment period lasts for 6 months beginning the month an individual turns 65 and enrolls in Medicare Part B.

• If enrolled during this period, the insurer cannot use medical underwriting, refuse coverage, charge a higher premium, or impose a waiting period for pre-existing conditions.

Standardized Medicare Supplement Coverage Requirements

• The NAIC Model Law, with respect to Medicare supplement policies, was amended to revise the standardized Medicare Supplement plans delivered or issued for delivery in any state.

• Plans A, B, C, D, F, F with high deductible, G, K, L, M, & N are available.

Plan A - Core Benefits

Plan A is the basic Medicare Supplement plan and must be offered by all insurers marketing Medicare Supplements. Plan A provides the core benefits that must also be included in all other Medigap plans. The core benefits include:

• Coverage of Part A Medicare eligible expenses for hospitalization to the extent not covered by Medicare from the 61st day through the 90th day in any Medicare benefit period

• Coverage of Part A Medicare eligible expenses incurred for hospitalization to the extent not covered by Medicare for each Medicare lifetime inpatient reserve day used

• Upon exhaustion of the Medicare hospital inpatient coverage including the lifetime reserve days, coverage of 100% of the Medicare Part A eligible expenses for hospitalization subject to a lifetime maximum benefit of an additional 365 days

• Coverage under Medicare Parts A & B for the reasonable cost of the first 3 pints of blood

• Coverage for the coinsurance amount of Medicare eligible expenses under Part B regardless of hospital confinement, subject to the Medicare Part B deductible

• Hospice Care - Coverage of cost sharing for all Part A Medicare eligible hospice care and respite care expenses

Additional Benefits (supplement coverage)

In addition to basic benefits, a number of other benefits are included in Plans B through N in different combinations and with some limitations. Those Plans & benefits include:

• Plans C & F pay the Part B deductible

• All plans, except A & B, pay for skilled nursing facility care: Covers the coinsurance amount from the 21st day through the 100th day in a benefit period for post-hospital skilled nursing facility care eligible under Medicare Part A.

• Plans C, D, F, G, M, & N pay for foreign travel emergency care: Pays 80% of the billed charges for foreign emergency care that Medicare would have covered if it was provided in the United States. Care must begin during the first 60 days outside the US. The calendar year deductible is $250 and the lifetime maximum benefit is $50,000.

• Plans F & G pay Medicare Part B excess doctor charges: Pays 100% of a doctor’s excess fees.

• Plan F High Deductible Plan: This Plan offers all the regular Plan F benefits, but in return for a lower premium, the policyholder accepts an annual deductible to be eat out-of-pocket before benefits kick in. The deductible amount is set by Medicare and is subject to an annual adjustment.

• Plans K & L: Plans K & L cover the same basic services as other Plans, but at different levels. In exchange for lower premiums, Plan K has a 50% coinsurance and Plan L 75%. Both Plans have annual out-of-pocket limits, which are adjusted for inflation annually. Once the annual limits are reached, the supplement pays 100% for the remainder of the year.

• Plans C, D, F, G, M, & N pay foreign travel emergency care as an additional benefit. The calendar year deductible is $250, and the lifetime maximum benefit is $50,000.

Medicare Supplement Replacement Requirements

When replacing a Medicare Supplement policy the agent must:

• Be sure that the replacement does not result in decreased benefits at an increase in premium

• Use an application containing questions that elicit info to determine if the applicant has or has had a Medicare Supplement in effect or if the application is for replacement of an existing Medicare Supplement.

• Provide a notice of replacement to the applicant prior to issuance or delivery of the new Medicare Supplement policy. 1 copy of the notice, signed by the applicant and the agent, must be provided to the applicant. 1 signed copy must also be retained by the insurer.

When recommending the purchase or replacement of a Medicare Supplement policy, an agent must make reasonable efforts to determine the appropriateness of the purchase or replacement.

If a Medicare Supplement policy relapses another Medicare Supplement policy that has been in force for 6 months or more, the replacing insurer cannot impose an exclusion or limitation based on a preexisting condition. If the original policy has been in force for less than 6 months, the replacing insurer must waive any time periods applicable to preexisting conditions to the extent that they have already been satisfied under the original policy.

Medicare Select

• Medicare Select insurance is the managed health care version of the traditional Medicare Supplement policy that has been offered through indemnity insurers.

• Medicare SELECT plans must cover the same benefits as any non-SELECT Medigap plan if the plan’s network for care is used.

• Services are provided to insured through network providers who have contracted with the insurer to provide medical care.

• By using hospitals, physicians, and surgeons on the approved provider list, the insured receives benefits.

• If insured seeks services from a non-network provider, higher deductibles and coinsurance will be required, unless it is an emergency.

• In the event the Medicare Select program is discontinued, the insured will have the right to convert coverage to a traditional Medicare Supplement policy without having to prove insurability.

Employer Group Health Plans

• Disabled employees must be provided coverage under a large group health plan (100 or more employees) if the employee is under 65 and not retired at the time of disability.

• Employer group health plans will be the primary payor for 30 months of coverage for individuals who are eligible for Medicare because of End Stage Renal Disease, or kidney failure. After 30 months, Medicare will become the primary payor.

• Individuals 65 or older who are still working may continue to be covered under an employer group health plan (employers with 20 or more employees) as the primary coverage and Medicare will provide secondary coverage. If employer has less than 20 employees, Medicare will be the primary payor.

Medicaid

Medicaid provides increased assistance to those with a financial and medical need. Depending on the state, Medicaid eligibility is based on income of 133-138% of the federal poverty level (FPL), and is adjusted for household size.

Eligibility

• The Medicaid program also assists individuals receiving public assistance and who are:

  • 65 years of age or older

  • Blind or disabled

  • Receiving payments under the Temporary Assistance to Needy Families program

  • Medically needy or medically indigent refugees in this country (for 18 months or less)

  • Pregnant women

  • Persons in skilled nursing or intermediate care facilities

  • Children under age 21, including those who may be in foster care

  • Individuals needing kidney dialysis due to ESRD (End-Stage Renal Disease)

Benefits

• Medicaid pays for hospital care, outpatient care, certain nursing facilities, doctors, laboratory and x-ray services, prescriptions, Long-Term Care, and some health care after current assets are exhausted.

• Medicaid is a federal program that is administered by the state. The federal government provides most of the money to provide benefits, the state provides the admin services necessary to run the program.

• Any state-mandated benefits under Medicaid not required by the federal government must be paid for with state funding.

Long-Term Care Insurance

• Long-Term Care Insurance includes any individual policy, group policy, or rider that is advertised, marketed, offered, solicited, or designed to provide coverage for no less than 12 consecutive months.

• It may also be referred to as Extended Care.

• It may cover diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital.

Long-Term Care Need

• National studies indicate that at some point 40% of people over age 65 will enter a nursing home.

• The older a person, the greater the possibility they will need some kind of long-term care.

• Medicare provides very limited coverage (skilled nursing) for long-term care.

• Only certain low income individuals will qualify for assistance through Medicaid.

• The need for coverage can arise at any age.

Types of Long-Term Care Contracts

Long-term care coverage may be written as any of the following:

• Riders/Endorsements for Life insurance policies. Hybrid long-term care policies combine the benefits of a life insurance policy with a traditional long-term care contract. This product guarantees long-term care benefits, but will provide a death benefit if no care is needed.

• Individual Policies (issue ages 18-84) are the most common form of LTC being sold today. These policies are regulated by the state and can be customized to meet the insured’s needs.

• Group (Voluntary) Policies:

  • Must be guaranteed renewable

  • Must be convertible in the event the group policy is terminated for any reason

  • More economical than individual due to risk pooling and reduced admin expenses

  • Voluntary plans do not require mandatory enrollment.

When a policyholder has cancelled a group Long-Term Care policy, continuation of coverage must be offered to each individual who was covered by the policy. The replacement coverage is individual insurance and will most likely be provided at a higher premium cost. However, the “issue age” must be the same as that which the person was first insured under the group policy.

Elimination Period, Benefit Period, & Benefit Amount

• Rates are affected by the length of the elimination and benefit periods and the amount of benefit.

• The elimination period may be as short as 30 days and as long as 1 year, with 90 days being the most common. The elimination period is a waiting period after a loss occurs before the benefit period begins. The shorter the elimination period, the higher the premium. The elimination period qualification can be achieved one of two ways:

  • Service Days

    • The elimination period is based on the number of days in which the insured actually received care. Ex: If insured was receiving home care for 4 days a week, only 4 days would count toward the elimination period.

  • Calendar Days

    • The elimination period is based on the number of calendar days starting with the first day of the claim.

• The policy benefit period is the amount of time the benefits will be paid upon a loss, which is not the same as how long the policy is in force. The benefit period begins at the end of the elimination period. The policy will pay benefits for a stated benefit period (2, 5, 10 years, to age 65, or a lifetime benefit may be selected). The longer the benefit period, the higher the premium.

• Long-Term Care contracts are usually indemnity plans that are structured to pay a daily benefit amount as specified in the contract, such as $50-$200 per day. Benefit amounts will vary based on the level of care provided. The contract will pay up to the policy maximum limits.

• The coverage will continue until the last dollar has been spent. If spending is below the daily limit, the benefit will last longer than the rated benefit period; if spent at a faster rate, the benefit will be exhausted prior to the stated benefit period. Either way, the insured will have obtained the full benefit of the policy.

Benefit Triggers

• There are conditions that initiate or trigger the benefits to be paid under a Long-Term Care policy. A Physician Certification stating the patient is chronically ill and in need of long-term care is required. Prior hospitalization is not a requirement to trigger benefits. There are two classifications of benefit triggers:

  • Activities of Daily Living

    • Includes bathing, continence, dressing, eating, toileting, and transferring. Insurers may include the definition of ambulating within the definition of transferring, but ambulating by itself cannot be included as an ADL in a tax-qualified LTC policy. If insured is incapable of performing or requires stand-by assistance with any two or more of these ADLs, the benefits will be triggered. The insured is considered to be functionally impaired.

  • Cognitive Impairment

    • Involves the loss of memory and deductive or abstract reasoning due to an organic mental illness, including Alzheimer’s disease or senile dementia. Also includes impairment due to traumatic brain injury, such as stroke or blunt-force trauma. Impairment in any of the ADLs is not required under this classification.

LTC Facilities and Levels of Care

Skilled Nursing Care

• Continuous 24-hour care provided or supervised by a registered nurse

• Includes specialized services such as feeding tubes, IV therapy, and wound care

• Provided in a licensed facility, such as a nursing home, that operates according to the laws of the state and requires a licensed physician to be responsible for all patient care

Intermediate Care

• Daily, but not 24-hour, care provided or supervised by a licensed medical professional

• Includes care designed to assist with daily medical needs, such as dispensing medication

• Considered “in-between” care to help patients requiring less than skilled care remain independent and to prevent unnecessary hospitalization

• Usually provided in a nursing home, intermediate-care unit, or assisted living facility that is licensed by the state and requires a licensed physician to be responsible for all patient care

Custodial (Non-skilled) Care

• Nonmedical care to provide assistance with activities of daily living such as bathing, toileting, eating, dressing, transferring, and continence

• Does not require caregiver to be a licensed medical professional

• May be in a licensed facility or in one’s own home

Comprehensive LTC Coverages

Long-term care insurance may be issued to provide coverage for institutional care or home and community-based care. A comprehensive long term care insurance policy includes both. The following are standard coverages provided by all LTC policies:

Home Health Care

• Noninstitutional care received in one’s own home, or the home of another, under a planned program by an attending physician.

Hospice Care

• Provides pain control, comfort, and counseling for the terminally ill patient. Hospice care also includes a family counseling benefit.

Assisted Living

• A system of housing and limited care that is designed for senior citizens who need some assistance with daily activities, but do not require care in a nursing home.

Adult Day Care

• Designed to provide custodial care an supervision on a day care basis outside the home for individuals not requiring 24-hour confinement in a nursing home, but who continue to live at home.

Respite Care

• Provides relief to a primary caregiver and can include a service, such as someone coming to the home while the original caregiver tends to other matters. Most policies will include the benefits for temporary institutionalization of the insured during a period of respite.

Waiver of Premium (LTC policy options)

• Most Long-Term Care polices include a waiver of premium benefit that provides for premiums to be waived after the stated elimination period has elapsed and for as long as disability continues.

• The elimination period in along term care policy is a one-time requirement.

Inflation Protection (Cost of Living) (LTC policy options)

• At the time of application, LTC policies must offer insured the option of purchasing inflation protection which increases the daily benefit amount in the future, but it is not required to be purchased.

• LTC plans typically offer simple and compound inflation protection.

Guaranteed Insurability Option (Future Increase Option) (LTC policy options)

• Provides for future period increases without proof of insurability, even if the insured is on claim.

• Future purchase options will increase the premium each time an increase in daily benefit is accepted.

Return of Premium (LTC policy options)

• This optional benefit provides for a refund of a portion of the premium to a named beneficiary if insured dies before all benefits pay out.

• The refund is offset by the amount of any claims paid prior to insured’s death.

Nonforfeiture Options (LTC policy options)

• This rider will provide paid-up coverage if the insured cancels or lapses the policy due to nonpayment of premium.

• The nonforfeiture amount will be used to provide future benefits based on the premiums that were paid into the policy

• Nonforfeiture options include:

  • Cash Surrender Value

    • Provides a lump sum payment of surrender values accumulated in the policy

  • Reduced Paid-Up

    • Reduces the daily benefit for the duration of the benefit period once premiums have been discontinued

  • Extended Term

    • Provides for the current daily benefit limit to be paid for a reduced number of years based on the discontinuance of premium payments

Underwriting Considerations

• As with any health insurance program, the underwriter for Long-Term Care is most concerned with the possibility of an immediate large claim against the policy.

• Generally an insurance company will not issue a policy and assume a Long-Term Care risk if the prospective insured is impaired in any one of the 6 ADLs or is suffering from a cognitive impairment.

Preexisting Conditions (underwriting considerations)

• A LTC policy cannot more restrictively define a preexisting condition than “a condition for which advice or treatment was recommended or received within 6 months of the effective date of coverage”.

Prohibited Provisions (underwriting considerations)

A LTC policy may not contain a provision that:

• Cancels, nonrenews, or terminates the policy on grounds of age or deterioration of the mental or physical health of the insured. A LTC policy may only be cancelled by insurer for nonpayment of premium.

• Establishes a new waiting period when existing coverage is converted or replaced by a new form, except when the insured voluntarily selects an increase in benefits.

• Provides coverage for only skilled nursing care instead of lower levels of care.

• Provides for payments of benefits based on standards described as “usual and customary” or “reasonable and customary“ or words of similar importance (policies must pay actual expenses, up to the dollar limitations of the policy.

A LTC policy may not place conditions on benefits:

• Based on prior hospitalizations

• For institutional care, if insured received a higher level of institutional care

• For home health care after prior institutional care

• For noninstitutional care eligibility, other than home health care, on a prior institutional stay of more than 30 days

LTC Minimum Benefit Standards & Exclusions

• Every LTC policy must provide a 30-day free look period from the date the policy is delivered. If applicant is not satisfied, the policy may be returned for a full refund, and the policy is voided.

• LTC policies also must contain a renewal provision that is not less favorable to the insured than Guaranteed Renewable.

• A guaranteed renewable policy requires the insurer to continue to renew, but may increase rates based on the “class” of insureds, such as geographic location. The renewal provision must be stated on the first page of the policy.

• A LTC policy may be cancelled for nonpayment of premium.

• An Outline of Coverage must be delivered to an applicant on the initial solicitation and prior to the presentation on the application form.

• LTC policies that pay on an indemnity basis have a maximum daily benefit. Every LTC policy must include basic policy requirements in the policy provisions.

• An Extension of Benefits must be provided if institutionalization began while policy was in force and continues without interruption after termination of the policy. The extension of benefits may be limited to the duration of the benefit period or to the payment of maximum benefits.

LTC Exclusions

• Acute care (hospitalization)

• Rest cures

• Nervous or mental disorders which have no demonstratable organic cause (Alzheimer’s disease cannot be excluded)

• Injury or sickness caused by war or any act of war, declared or undeclared

• Intentionally self-inflicted injuries

• Chemical dependency, unless it results from the administration of drugs under a physician’s prescription and direction

• Conditions covered under Workers’ Comp

• Injury arising out of committing or attempting to commit a felony

• Services provided outside the United States

Replacement of LTC Policies

• In recommending the purchase or replacement of any LTC insurance, an agent shall make a reasonable effort to determine its appropriateness.

• No insurer or agent may unnecessarily replace a policyholder’s LTC insurance policy or replace it with a policy with fewer benefits and a greater premium.

• All LTC applications must contain questions which request info from the applicant concerning whether the new policy is intended to replace any other Accident, Sickness, or LTC contract.

• When it is determined that the sale of the policy involves replacement, the agent must provide the purchaser with a “Notice Regarding Replacement of Accident and Sickness or LTC Coverage”.

• 1 copy of the notice is given to the applicant, and a signed copy is retained by the insurer.

• If a policy replaces another LTC Policy, the replacing insurer shall waive any preexisting time periods that were satisfied under the existing policy.