Life & Health Chapter 17 | Health Chapter 8: Health Insurance Plans for Seniors
CHAPTER SUMMARY: INSURANCE PLANS FOR SENIORS AND SPECIAL NEEDS
Medicare
The federal government administers Medicare through the Center for Medicare and Medicaid Services (CMS).
Medicare is considered a part of OASDHI.
Medicare provides hospital and medical expense insurance primarily to those who are the age of 65 and older.
Any person who’s eligible for Social Security retirement benefits is automatically eligible for Medicare.
Original Medicare versus Medicare Advantage
There are two ways to access Medicare—Original Medicare and Medicare Advantage.
Original Medicare (Part A and Part B) is administered by the federal government.
Individuals who choose Original Medicare also must purchase a Medicare Part D Prescription Plan.
Individuals who choose Original Medicare generally need a Medicare Supplement (Medigap) policy to cover co-insurance, co-pays, and deductibles.
Medicare Advantage (Part C) is an “all in one” private alternative to Original Medicare and a Medicare Supplement.
These plans are often HMOs or PPOs.
Some plans include Medicare Part D prescription drug coverage.
Original Medicare
Enrollment in Medicare Part A and Part B is automatic for Social Security recipients at age 65, though one can decline Part B.
Anyone still working must enroll themselves.
Enrollment
When an individual turns the age of 65, the initial Medicare enrollment period:
Begins three months before the start of his birth month
Ends at the end of the third month following the month he turns age 65
If an individual fails to enroll in Part B during the initial enrollment period, he may enroll during the annual open enrollment period, which is January 1 through March 31.
Coverage begins the following July 1.
Late enrollees may pay a higher premium.
Premiums
There’s no Medicare Part A premium for any person who’s covered by Social Security and is “fully insured.”
Any person who elects Medicare Part B pays a monthly premium that’s automatically deducted from her Social Security check.
Participating Providers and Medicare Assignment
▪ Participating providers accept assignments and agree to accept the approved Medicare fee for their services.
▪ Non-participating providers don’t accept assignment and collect their fees directly from the insured, but they may charge up to 15% more than the Medicare-approved amount.
Medicare and Group Insurance
Employer Group Medical – COBRA Groups
An employer-sponsored group health plan that covers a person who’s the age of 65 or older is her primary insurer if the employer is a qualified COBRA group, while Medicare is secondary.
The employee will be eligible for a “special enrollment period” when she retires.
Individual and Retiree Insurance and Medicare
Individual health insurance policies and retiree health insurance benefits are secondary payors after Medicare.
Medicare Part A – Hospital Insurance
Medicare Part A provides inpatient hospital care, skilled nursing care, home health care, and hospice care.
The primary source of financing for Part A is federal payroll and self-employment taxes.
Inpatient Hospital Care
Inpatient hospital benefits cover the expense of a semi-private room, nursing, drugs, tests, operating rooms, and other medical services and supplies.
Benefit periods begin when a person is admitted to a hospital and end 60 days after a person is discharged.
Hospital Benefits: Medicare Part A covers up to 90 days of inpatient hospital care per benefit period and an additional 60 Lifetime Reserve Days.
Cost-Sharing
Per benefit period deductible.
No co-insurance for the first 60 inpatient days.
Daily co-insurance amount for days 61 through 90.
Co-insurance amount of twice the co-insurance for days 61 through 90 for lifetime reserve.
Skilled Nursing Care Benefits
Medicare provides a short-term recovery benefit of up to 100 days in a skilled nursing facility.
Beneficiaries qualify for this benefit following a recent hospital stay of at least three inpatient days.
Coverage ends sooner if the maximum level of recovery is achieved.
Medicare doesn’t cover custodial care.
Cost Sharing
There’s no cost-sharing for the first 20 days of residential care.
Starting on day 21, there’s a daily co-insurance amount.
All coverage ends after a maximum of 100 days.
Other Part A Benefits
Inpatient Psychiatric Care: Up to 190 days (lifetime) of inpatient care at a psychiatric facility
Home Health Care Benefits: Medicare Part A covers home health care costs.
Hospice Care:
Medicare offers hospice benefits to individuals with a life expectancy of six months or less.
Medicare provides two 90-day benefit periods.
A person may receive additional care in 60-day increments.
Exclusions (Medicare Part A)
A private duty nurse or attendant in private rooms
The first three pints of blood
Personal conveniences (telephones, TV rentals, etc.)
The cost of non-employee surgeons and anesthesiologists
Medicare Part B – Supplemental Medical Insurance
Part B covers doctors’ services, outpatient medical services, labs, x-rays, supplies, durable medical equipment, and other services.
Part B also pays for the cost of non-employee surgeons and anesthesiologists who are performing inpatient surgery.
Medicare Part B covers doctors’ services and exams that are performed anywhere in the United States.
Cost Sharing
All beneficiaries pay an annual deductible ($203 in 2021).
Beneficiaries pay 20% co-insurance on covered charges.
Medicare Part B – Exclusions
The services of a private duty nurse or attendant
Intermediate or custodial care
The cost of skilled nursing care over 100 days
Vision and hearing care
Dental care
Outpatient prescription drugs and immunizations
Cosmetic surgery
Routine physical examinations and foot care
Physician costs exceeding Medicare’s approved amount
Medicare Part C – Medicare Advantage (Formerly Medicare + Choice)
Medicare Part C (Medicare Advantage) is a private alternative to the Original Medicare.
The government pays private companies 95% of the government’s average cost for each insured who chooses an Advantage plan.
Advantage plans provide major medical insurance that replaces Original Medicare and eliminates the need for Medigap.
Qualifying for Medicare Part C
An individual must enroll in Parts A and B to be eligible for Medicare Advantage.
Part C enrollees continue to pay the Part B premium.
Part C enrollees also pay a premium to their chosen insurer.
Evidence of insurability is not required during the six months following an individual’s 65th birthday.
An individual may only participate in one Medicare Advantage plan at a time.
Part C participants may use HSAs to pay medical expenses.
Health Maintenance Organizations (HMOs)
Medicare Advantage HMOs are similar to other HMOs.
They provide coverage through a defined network.
A primary care physician manages care and refers patients to network specialists.
Out-of-network care is restricted to emergency services only.
Preferred Provider Organizations (PPO)
Medicare Advantage PPOs are similar to other PPOs.
They cover discounted services through a defined network.
They also provide some coverage for out-of-network services.
Private Fee for Service (PFFS) Plan
An individual may see any participating Medicare provider.
The insurance plan, rather than Medicare, decides how much the insurer and insurer will pay, respectively.
PFFS plans may include extra benefits.
Medicare Part D – Prescription Drug Plans
Part D prescription drug plans (PDPs) cover outpatient medication costs.
Private companies offer and administer these PDPs.
The initial enrollment period is the same as that which is used for Part B.
In subsequent years, the annual open enrollment period is October 15 through December 7.
Any person who enrolls late is subject to a premium penalty.
Each plan covers the cost of the prescription medications that are listed in its formulary.
Part D PDPs typically have a gap in coverage between the two layers of coverage—basic and catastrophic. This is referred to as the “donut hole.”
Medicare Supplements (Medigap)
Medigap or Medicare Supplement policies are sold by private insurers and other health care providers.
These policies help fill in any gaps in coverage under Original Medicare by paying Medicare’s cost-sharing amounts, which include deductibles and co-insurance.
The National Association of Insurance Commissioners (NAIC) established regulated coverage forms. Currently, there are 10 different plans available for purchase out of 14 options labeled Plan A through Plan L. Only contracts that conform to one of these forms can be referred to as a Medicare Supplement policy.
Original Medicare limits the coverage Medigap policies can offer.
Medicare Supplement benefits cannot duplicate Medicare.
Medigap plans cannot add additional benefits (e.g., dental).
Benefit terms cannot be more restrictive than those that are set by Medicare.
A person can only have one Medicare Supplement.
Medigap benefits change annually and reflect changes in Medicare.
Insurers must provide insureds with at least 30 days’ notice.
Medicare Select is a Medicare Supplement that’s available in most states, and it offers the standard coverages through a closed-end HMO in return for a lower premium.
Medigap Enrollment
The best time for a person to buy a Medicare Supplement policy is during her open enrollment period.
Medigap is a guaranteed issue contract during open enrollment.
Standardized Plans
The NAIC has standardized policies to help consumers understand them, compare them, and make informed buying decisions.
All Medigap contract policies must include the core benefits.
Plan A is the most basic Medigap policy, which only offers the core benefits.
Core Benefits
Part A Benefits
100% of the daily hospital co-insurance for days 61 through 90 of inpatient care during a standard benefit period
100% of the daily hospital co-insurance for the insured’s lifetime reserve days
365 additional lifetime reserve days
100% of hospice care co-insurance or co-payments
Part B Medical Benefit: Payment of the 20% co-insurance for approved charges after meeting the annual deductible
Parts A and B Benefits: Medigap plans pay for the first three pints of blood
Additional Benefits
Plans B through L provides additional benefits such as the payment of deductibles, excess charges, skilling nursing home cost-sharing amounts, and foreign travel emergencies.
In some states, Plans F and G offer a high-deductible option.
Contract Requirements
The NAIC Model Act, which governs Medigap policies, sets forth a variety of contract requirements:
Medigap policies must have a 30-day free-look period.
Medicare Supplements must be guaranteed renewable.
Medigap policy terms cannot be more restrictive than Medicare.
Pre-existing conditions cannot be excluded.
The maximum pre-existing condition waiting period is six months.
Policy benefits and other terms automatically change to mirror changes in Medicare and the law.
Soliciting duplicate coverage is prohibited by law.
Medigap policies must have a six-month open enrollment period which starts when an insured enrolls in Medicare Part B. Insurers cannot charge higher rates because of underwriting considerations during this time.
No new probationary period may apply to a replacement policy.
The model law states that insurers must achieve a minimum 65% loss ratio for individual policies and 75% for group plans.
Advertising and Marketing Standards
State insurance departments must approve Medigap policy forms before they’re marketed in most states.
Insurers must submit Medigap policy advertisements to the state insurance department at least 30 days before being used.
Insurers must provide applicants with a copy of the Medigap Buyer’s Guide at the time of application.
Agents must provide a “Notice of Replacement” when replacing an existing Medigap plan.
Prohibited Practices
Duplication of Coverage – The sale of multiple Medigap policies to one person is illegal.
High-Pressure Tactics – This refers to any sales approach that uses explicit or implicit threats, excessive pressure, or creates a climate of fear.
Cold Lead Advertising – This is an advertising or marketing practice that fails to disclose that an agent may be calling.
Twisting – This is the illegal use of misrepresentation or deception to induce the sale of a policy.
Producer Compensation
First-year commissions cannot exceed 200% of the second-year commissions.
The amount paid in year two must continue for five years.
Long-Term Care Insurance (LTCI)
Long-term care insurance (LTCI) pays for a broad range of services for individuals who need assistance with the activities of daily living (ADLs) for an extended period due to either cognitive impairment or a physical loss of function. These contracts cover at least 12 consecutive months of care in a setting other than a hospital.
Today there are three types of contracts that provide LTCI—life insurance riders, hybrid contracts, and stand-alone LTCI policies.
There are three distinct levels of nursing care—skilled nursing care, intermittent care, and custodial care. Individuals receive this care in nursing homes, assisted living facilities, adult daycare centers, and their own homes.
Skilled Nursing Care
Skilled nursing care is daily nursing and rehabilitative care available 24 hours a day.
Physician-ordered care performed by (or under the supervision of) skilled medical personnel.
Intermediate Care
Intermediate care is intermittent nursing and rehabilitative care.
It’s based on a physician’s orders and provided by skilled medical personnel.
Custodial Care
It’s non-medical assistance with personal needs such as bathing, walking, eating, dressing, or taking medication (the ADLs).
Medically unskilled persons can provide this care.
This care must still be approved and ordered by a physician.
The Delivery of Long-Term Care Services
Formal care is paid care, while informal is unpaid care.
Insurance policies only pay for formal care but may provide a training allowance for informal caregivers.
Nursing homes provide skilled nursing care for persons with medical issues and a significant loss of functions.
Assisted living facilities are residential communities that offer intermittent nursing services and personal services such as housekeeping, onsite meal facilities, and social activities.
Home health care is primarily skilled care that’s delivered by visiting nurses and other medical professionals (e.g., physical therapists).
Home careis personal care that’s delivered by home health aides who help clients perform the activities of daily living.
Home care may include hands-on help and stand-by assistance, both of which fall in the category of substantial assistance.
Adult daycareis designed for seniors who live at home but whose family members cannot stay with them during the day because of work or other commitments.
The level of care provided at adult daycare centers is similar to home health care.
Continuing care communities allow elderly individuals to access progressively more intensive levels of care without leaving the community that has become their home.
Respite care gives informal caregivers a short period of relief or time off. It may be provided at the individual’s home or in a facility.
Long-Term Care Insurance – NAIC Model Minimum Standards
The NAIC model proposes the following standards:
Long-term care insurance provides benefits for at least 12 months of ongoing care.
Long-term care insurance pays benefits based on the loss of function or cognitive impairment.
The policy must have a free-look period and must be guaranteed renewable or better.
The maximum pre-existing condition exclusion is six months.
The maximum pre-existing condition look-back period is six months.
The NAIC model includes the following prohibitions:
Policies cannot require a residential facility stay before receiving home care.
Policies cannot pay significantly greater benefits for skilled care than for other levels of care in a facility.
Policies cannot require prior hospitalization.
Policies cannot supplement Medicare.
Policies cannot require a particular medical condition or terminal diagnosis to qualify for benefits.
Insurers cannot include an impairment rider for specific conditions.
Insurers must give the consumer an outline of coverage.
Producers are principally responsible for determining suitability.
The NAIC definition doesn’t include life insurance contracts that pay a lump-sum accelerated death benefit.
Long-Term Care Riders in Life Insurance Contracts
Accelerated Death Benefit Riders
An accelerated death benefit pays part of a life insurance death benefit upon the diagnosis of a terminal illness.
Some riders pay a monthly benefit if the insured is confined to a nursing home for end-of-life care.
The NAIC does NOT include these riders in its model definition of long-term care insurance.
Long-Term Care Riders
Long-term care riders use part of a life insurance policy’s face amount to pay a monthly benefit for long-term care services.
Insureds qualify for benefits on the same basis as those covered by stand-alone long-term care insurance policies.
LTC Hybrid (Linked) Plans
Hybrid long-term care plans combine annuity (or life insurance) benefits with a traditional long-term care policy.
The long-term care benefits are guaranteed.
The potential long-term care benefit is greater than the underlying contract.
Qualifying for Long-Term Care
LTCI policies have two benefit triggers—a loss of the physical ability to perform at least two ADLs or cognitive impairment.
Loss of the Ability to Perform Two ADLs:
The six recognized ADLS are Bathing, Dressing, Toileting, Transferring, Continence, and Eating
Policies define a loss as the inability to perform two or more ADLs without substantial assistance, which the NAIC defines as either “Hands-on” (physical) assistance, or “Stand-by assistance”
Cognitive Impairment: The NAIC Model LTCI regulation defines a “cognitive impairment” as a deficiency in a person’s:
Short or long-term memory
Orientation as to person, place, and time
Deductive or abstract reasoning, or
Judgment as it relates to safety awareness
Long-Term Care Insurance – Benefit Periods
Policies often require a diagnosis that a person’s impairment is expected to last 90 days or more.
Elimination Period: LTCI policies generally include an elimination period.
Waiver of Premium: The waiver of premium provision suspends premium payments while the insured is receiving benefits.
LTCI policies define benefits as a maximum daily amount that’s payable for a specified duration.
The “pool of money” concept defines benefits as an amount of available dollars, not a number of days.
Daily Benefit Amounts
A higher LTCI daily limit results in a higher annual premium.
Home care limits are often between 50% and 80% of the benefit for care in a facility.
LTCI contracts pay daily benefits either as a fixed daily indemnity or a reimbursement for actual costs.
Long-Term Care Insurance – Optional Provisions
Return of Premium Option: The return of premium rider refunds the premiums paid under certain circumstances, such as when a policy lapses or the insured dies without using the policy’s benefits.
Guarantee of Insurability Option (Rider): The guaranteed insurability rider is inflation protection.
The insured can buy more coverage at future intervals based on an assumed rate of inflation.
Renewability Provisions: All long-term care policies must be issued as at least guaranteed renewable.
Non-Forfeiture Options: An insured receives non-forfeiture benefits if the policy lapses due to the non-payment of premium. Policy owners receive one of the following amounts depending on the policy:
A reduced paid-up policy
Access to the policy’s daily benefit for a shortened period, or
A specified dollar amount
Automatic Inflation Rider (AIR): The automatic inflation rider increases the initial daily LTCI benefit, most often by 5% compounded annually.
Policy Exclusions
Exclusions that are found in a long-term care policy include war, treatment for drug or alcohol abuse, intentionally self-inflicted injury, attempted suicide, nervous disorders, mental illnesses, institutional care received outside the U.S., or losses covered by Workers’ Compensation.
Application and Underwriting
Insurers must ensure that their agents:
Make fair and adequate policy comparisons
Avoid selling excessive insurance; and
Advise buyers that the policy may not cover all costs
Insurers must waive any pre-existing condition limitations on replacement policies.
Agents must provide disclosures at the time of sale. Although the disclosures vary by state, they typically include an Outline of Coverage, LTCI Shopper’s Guide, Personal Worksheet, and Rating Practices.
To prevent an unintentional lapse, applicants may designate a third party to receive any notice of a policy lapse due to non-payment.
Post-claims underwriting is the prohibited practice of approving all applicants and then underwriting risk exposures when a claim is filed (and then often denied).
Post-claims underwriting is an unfair trade practice.
Association and Group Long-Term Care Insurance
Association (Affinity Group) LTCI
An association markets the policy, addresses member questions, and provides objective information.
The association must disclose all compensation received for endorsing the program and the process for selecting it.
Employer Group Insurance
Employers often offer LTCI as a voluntary, employee-paid benefit.
Policies often have simplified underwriting and discounted premiums.
Plans allow access to a more extended family group.
Large employers may also offer the benefit as a true group LTCI plan with some guaranteed issue coverage for employees.
Tax Considerations
Individual long-term care policy premiums are not tax-deductible (i.e., they’re after-tax).
LTCI benefits that reimburse expenses are not taxable.
LTCI policies that pay a flat daily indemnity may pay the insured more than the insured spent. The insured may owe taxes on the excess unless the insured’s long-term care policy is tax-qualified.
Expenses that are paid for long-term care services, including premiums paid for qualified plans, are treated as any other medical expense. They’re deductible in excess of 7.5% of an individual’s adjusted gross income.
Qualified Long-Term Care Policies
The policy cannot pay expenses that are reimbursable under Medicare.
The benefit trigger must be either the loss of a person’s ability to perform two ADLs or severe cognitive impairment.
The policy is at least guaranteed renewable.
The policy doesn’t include a cash surrender value.
The policy only provides long-term care services.
The policy has a 30-day fee-look period.
The policy requires all claims to be based on a medical diagnosis of disability lasting at least 90 days.
Insureds who file claims must have a written plan of care.
Medicare, Medicaid, and LTCI
Medicare
Medicare is medical insurance for individuals who are the age of 65 and older, along with certain individuals who suffer a severe disability.
It provides treatment for acute and chronic illnesses.
Medicaid
Medicaid is a means-tested, public program established to provide medical and supportive services to individuals who are at or below the poverty line.
The federal government and the state share the funding.
Each state administers its own program.
Low-income individuals who are the age of 65 and older can qualify for both Medicare and Medicaid to cover their medical costs more fully.
Senior citizens who lack assets can be eligible for long-term services and supports (LTSS) that are paid by Medicaid.
If an insured transfers assets to family members, the medical assistance administrators will delay the insured’s access to public funding for long-term services and support.
The look-back period is five years.
Long-Term Care Insurance
Long-term care insurance (LTCI) policies are the private alternative to Medicaid.
The long-term care partnership programs in each state encourage individuals to purchase private policies.
Long-Term Care Partnership Programs
Partnership programs are federally supported and state-operated initiatives.
They allow individuals who purchase policies that meet the long-term care partnership standards to protect a portion of those assets that they would otherwise need to spend before qualifying for Medicaid.
Partnership policy requirements vary by state.
All partnership policies must be tax-qualified and must provide inflation protection.
All policies must also meet consumer disclosure requirements.