How Benefits Are Paid

Insurance companies that sell long-term care insurance generally pay benefits using one of two methods: the expense-incurred method or the indemnity method. It is important to read the literature that accompanies your policy (or certificate for group policies) and to compare the benefits and premiums.

When the expense-incurred method is used, the insurance company must decide if you are eligible for benefits and if your claim is for eligible services. Benefits are paid either to you or your provider up to the limits in your policy. Your policy or certificate will pay benefits only when you receive eligible services. Most policies bought today pay benefits using the expense-incurred method.

When the indemnity method is used, the benefit is a set dollar amount. The insurance company only needs to decide if you are eligible for benefits. The specific services are not important. The insurance company will pay benefits directly to you up to the limit of the policy.

What Services Are Covered

It is important that you understand what services your long-term care insurance policy covers and how it covers the many types of long-term care services you might need to use. Policies may cover the following:

• Nursing home care
• Home health care
• Personal care in your home
• Services in assisted living facilities
• Services in adult day care centers
• Services in other community facilities

There are several ways policies may cover home health care. Some long-term care insurance policies only pay for care in your home from licensed home health agencies. Some also will pay for care from licensed health care providers not from a licensed agent. These include licensed practical nurses; occupations, speech, or physical therapists; or licensed home health care aides. Other policies may pay for services from home health care aides who may not be licensed or are not from licensed agencies. Home health care aides help with personal care. You may find a policy that pays for homemaker or chore worker services. This type of policy, though rare, would pay for someone to come to your home to cook meals and run errands. Generally, adding home care benefits to a policy also adds to the cost of the policy.

NOTE: Most policies don’t pay benefits to family members who give care in the home.

Where Services Are Covered

You should know what types of facilities are covered by your long-term care insurance policy. If you’re not in the right facility, the insurance company can refuse to pay for eligible services. New kinds of facilities may be developed in the future and it’s important to know whether your policy will cover them.

Some policies may pay for care in any state-licensed facility. Others only pay for care in some state-licensed facilities, such as a licensed nursing facility. Still others list the types of facilities where services will not be covered, which may include state-licensed facilities. Policies often will not cover homes from the aged, rest homes, and personal care homes. Some policies may list specific points about the kinds of facilities they will cover. Some will say the facilities must care for a certain number of patients or give a certain kind of care. When shopping for a long-term care policy, check these points carefully and compare the types of services and facilities covered in the policy. If your policy lists kinds of facilities, be sure to check if your policy requires the facility to have a license or certification from a government agency.

NOTE: If your are NOT placed in the kind of facility specified by your policy, the insurance company may not pay for the services you require.

What is Not Covered (Exclusion and Limitations)

Most long-term care insurance policies usually do not pay benefits for: a mental or nervous disorder or disease, other that Alzheimer’s disease or other dementia; alcohol or drug addiction illness or injury caused by an act or war; treatment the government has provided in a government facility or already paid for; or attempted suicide or intentionally self-inflicted injuries.

NOTE: In most states, regulations do not allow insurance companies to refuse to pay for covered services for Alzheimer’s disease that may develop after a policy is issued. Ask your state insurance department if this applies in your state. Nearly all policies specifically say they will cover Alzheimer’s disease.

How Much Coverage You Will Have

The policy or certificate may state the amount of coverage in one of several ways. A policy may pay different amounts for different types of long-term care services. Be sure you understand how much coverage you will have and how it will cover long-term care services you receive.

Maximum Benefit Limit. Most policies limit the total benefit they will pay over the term of the policy, but a few don’t. Some policies state the maximum benefit limit in years (one, two, three, or more, or even lifetime.) Others write the policy lifetime benefit limit as a total dollar amount. Policies often use words like “total lifetime benefit,” “maximum lifetime benefit,” or “total plan benefit” to describe their maximum benefit limit. When you look at a policy or certificate be sure to check the total amount of coverage. In most states, the minimum benefit period is one year. Most nursing home stays are short, but illnesses that go on for several years could mean long nursing home stays. You will have to decide if you want protection for very long stays. Policies with longer maximum benefit periods cost more. Read your long-term care insurance policy carefully to learn what the benefit period is.

Daily/Monthly Benefit Limit. Policies normally pay benefits by the day, week, or month. For example, in an expense-incurred plan, a policy might pay a daily nursing home benefit of up to $100 per day, and a weekly home care benefit of up to $350 per week. Some policies will pay one time for single events, such as installing a home medical alert system.

When you buy a policy, insurance companies let you choose a benefit amount (usually $50 to $250 a day $1,500 to $7,500 a month) for care in a nursing home. If a policy covers home care, the benefit us usually a portion of the benefit for nursing home care. It is important to know how much skilled nursing homes, assisted living facilities, and home health care agencies charge for their services BEFORE you choose the benefit amount in your long-term care insurance policy. Check the facilities in the area where you think you may be receiving care, whether they are local, near a grown child, or in a new place where you may retire. The worksheet on page38 can help you track these costs.

When You Are Eligible for Benefits (Benefit Triggers)

“Benefit triggers” is the term a company usually uses to describe the way it decides when to pay benefits. This is and important part of a long-term care insurance policy. Look at it carefully as you shop. The policy and the outline of coverage usually describe the benefit triggers. Look for a section called “Eligibility for the Payment of Benefits” or simply “Eligibility for Benefits.”

Different policies may have very different benefit triggers. Some policies use more than one way to decide when to pat benefits. Some states require certain benefit triggers. Check with your state insurance department to find out what your state requires.

NOTE: Companies may use different benefit triggers for home health care coverage than for nursing home care.

Types of Benefit Triggers

Activities of Daily Living. The inability to do activities of daily living, or ADLs, is the most common way insurance companies decide when you are eligible for benefits. The ADLs most companies use are bathing, continence, dressing, eating, toileting, and transferring. Typically, a policy pays benefits when you can’t do a certain number of the ADLs, such as three of the six or two of the six. It will be harder for you to be eligible for benefits when a policy requires you to be unable to do more ADLs. Federally tax-qualified policies are required to use being unable to do certain ADLs as a benefit trigger. A qualified policy is allowed to require you to be unable to do at least two of a list of five ADLs to collect benefits. Or, it can require that you be unable to do no more than two of six ADLS. The ADLs that trigger benefits in a tax-qualified policy must come from the list in the preceding paragraph. These triggers are specified in your policy.

If the policy you’re thinking of buying pays benefits when you can’t do certain ADLs, be sure you understand what that means. Some policies spell out very clearly what it means to be unable to feed or bathe oneself. Some policies say that you must have someone actually help you do the activities. That’s known as hands-on assistance. Specifying hands-on assistance will make it harder to qualify for benefits than if only standby assistance is required. The more clearly a policy describes its requirements, the less confusion you or your family will have when you need to file a claim.

NOTE: The sic activities of daily living (ADLs) have been developed through years of research. This research also has shown that bathing is usually the first ADL that a person can’t do. Qualifying for benefits from a policy that uses five ADLs may be hard if bathing isn’t on of the five.

Cognitive Impairment. Many long-term care insurance policies also pay benefits for cognitive impairment” or mental incapacity. The policy usually pays benefits if you can’t pass certain tests of mental function.

Coverage of cognitive impairment is especially important if you have been told you have Alzheimer’s disease or other dementia. If being unable to do ADLs is the only benefit trigger your policy uses, it may no pay benefits if you have Alzheimer’s disease but can still do most of the ADLs on your own. But if your policy also uses a test of your mental ability as a benefit trigger, it is more likely to pay benefits if you have Alzheimer’s disease. Most states do not allow policies to limit benefits solely because you have Alzheimer’s disease.

Doctor Certification of Medical Necessity. Some long-term care insurance policies will pay benefits if your doctor orders or certifies that the care is medically necessary. However, tax-qualified policies can’t use this benefit trigger.

Prior Hospitalization. Other long-term care insurance policies sold in the past required a hospital stay of at least three days before paying benefits. Most companies no longer sell policies that require a hospital stay.

NOTE: Medicare still requires a three-day hospital stay to be eligible of Medicare payment of skilled nursing facility benefits.

When Benefits Start (Elimination Period)

With many policies, your benefits won’t start the first day you go to a nursing home or start using home care. Most policies have an elimination period (sometimes called a deductible or a waiting period). That means benefits can start 0, 20, 30, 60, 90, 100 days after you start using long-term care. Elimination periods for nursing home and home health care may be different. How many days you have to wait for benefits to start will depend on the elimination period you pick when you buy your policy. You might be able to choose a policy with a zero-day elimination period, but expect it to cost more.

During an elimination period, the policy will not pay the cost of long-term care services. You may owe the cost of your care during the elimination period. You may choose to pay a higher premium for a shorter elimination period. If you choose a longer elimination period, you’ll pay a lower premium but must pay the cost of your care during the elimination period.

For example, if a nursing home in your area costs $100 a day and your policy has a 30-day elimination period, you’d have to pay $3,000 before your policy starts to pay benefits. A policy with a 60-day elimination period would mean you’d have to pay $6,000 of your own money. You’d spend $9,000 of your own money for nursing home care if the elimination period was 90 days.

If you only need care for a short time and your policy has a long elimination period, your policy may not pay any benefits. If, for example, your policy had a 100-day elimination period, and you received long-term care services for only 60 days, you would not receive any benefits from your policy.

On the other hand, if you can afford to pay for long-term care services for a short time, a longer elimination period might be right for you. It would protect you if you need extended care and also keep the cost of your insurance down.

You may also want to think about how the policy pays if you have a repeat stay in a nursing home. Some policies count the second stay as part of the first one as long as you leave and then go back within 30, 90, or 180 days. Find out if the insurance company requires another elimination period for a second stay.

What Happens When Long-Term Care Costs Rise (Inflation Protection)

Inflation protection can be one of the most important additions you can make to a long-term care insurance policy. Inflation protection increases the premium. However, unless your daily benefit increases over time, years from now you may find that it hasn’t kept up with the rising cost of long-term care. A nursing home that costs $110 a day will cost $292 a day in 20 years, if inflation is 5% a year. And the cost of nursing home care has been rising at an annual rate of 8% for the past several years. Obviously, the younger you are when you but a policy, the more important it is for you to think about adding inflation protection.

You can usually but inflation protection in one of two ways: automatically or by special offer. The first way automatically increases your benefits each year.

Policies that increase benefits for inflation automatically may use simple or compound rates. Either way, the daily benefit increases each year by a fixed percentage, usually 5%, for the life of the policy or for a certain period, usually 10 or 20 years.

The dollar amount of the increase depends on whether the inflation adjustment is “simple” or “compound.” If the inflation increase is simple, the benefit increases by the same dollar amount each year. If the increase is compounded, the dollar amount of the benefit increase goes up each year. For example, a $100 daily benefit that increases by a simple 5% a year will go up $5 a year and be $200 a day in 20 years. If the increase is compounded, the annual increase will be higher each year and the $100 daily benefit will be $265 a day in 20 years.

Automatic inflation increases that are compounded are a good idea but not all policies offer them. Some states now require policies to compound inflation increases. Check with your state insurance department to find out if this applies in your state. All individual and some group tax-qualified policies must offer compound inflation increases as a required optional provision. Compounding can make a big difference in the size of your benefit.

The second way to buy inflation protection lets you choose to increase your benefits periodically, such as every three years. With a periodic increase option, you usually don’t have to show proof of good health, if you regularly use the option. Your premium will increase if you increase your benefits. How much it increases depends on your age at the time. Buying more benefits every few years may help you afford the cost of the additional coverage. If you turn down the option to increase your benefit one year, you may not get the chance again. You may get the chance later, but you may have to prove good health, or it may cost you more money. If you don’t accept the offer, you need to check your policy to see how it will affect future offers.

NOTE: Most states have adopted regulations that require companies to offer inflation protection. It’s up to you to decide whether to buy the coverage. If you decide not to take the protection, you may be asked to sign a statement saying you didn’t want it. Be sure you know what you’re signing.

Additional Benefits

Third Part Notice. This benefit lets you name someone who the insurance company would contact if your coverage is about to end because you forgot to pay the premium. Sometimes people with cognitive impairments forget to pay the premium and lose their coverage when they need it the most.

You can choose a relative, friend, or a professional (a lawyer or accountant, for example) as your third party. After the company contacts the person you choose, he or she would have some time to arrange for payment of the overdue premium. You can usually name a contact without paying extra. Some states now require insurance companies to give you the chance to name a contact. You may even have to sign a waiver if you choose not to name anyone to be contacted if the policy is about to lapse.

Other Long-Term Care Insurance Policy Options You Might Choose

You can probably choose other policy features. Each may add to the cost of your policy. Ask your insurer what features increase your policy’s cost.

Waiver of Premium. The option lets you stop paying the premium once you are in a nursing home and the insurance company has started to pay benefits. Some companies waive the premium as soon as they make the first benefit payment. Others wait 60 to 90 days. The waiver of premium may not apply if you are getting home health care.

Restoration of Benefits. This option gives you a way to keep the maximum mount of your original benefit even after your policy has paid you benefits. With this option, if you go for a stated period without getting more long-term care services, your benefit goes back to the amount you first bought, For example, assume your policy paid you $5,000 in long-term care benefits out of a policy maximum of $75,000. You would have $70,000 in benefits left. With a restoration of benefits option, if you didn’t use any long-term care services for a specified time, your maximum benefit would go back to the original $75,000.

Premium Refund At Death. This benefit pays to your estate any premiums you paid minus any benefits the company paid. To get a refund at death, you must have paid premiums for a certain number of years. Some refund premiums only if the policyholder dies before a certain age, usually 65 or 70. The premium refund option may also add to the cost of a policy.

Downgrades. While it may not always appear in the contract, most insurers let policyholders ask to change the policy if they have trouble paying the premium. When you downgrade to a less comprehensive policy you probably will pay a lower premium. This may allow you to keep the policy in force instead of dropping it.

What Happens If You Can’t Afford the Premiums Anymore?

Nonforfeiture Benefits. If, for whatever reason, you drop your coverage and you have a nonforfeiture benefit in your policy, you will receive some value for the money you’ve paid into the policy. Without this type of benefit, you get nothing even if you’ve paid premiums for 10 or 20 years before dropping the policy.

Some states may require insurance companies to offer long-term care insurance policies with a written offer of nonforfeiture benefit. In this case, you may be given benefit options with different premium costs. In one type of benefit, when you stop paying your premiums, the company gives you a paid-up policy with a shorter benefit period. That means the policy will pay the same daily benefit that you bought but for fewer years. How many years depends on how long you paid premiums. Since it’s paid-up, you won’t owe any more premiums.

Other insurers may offer a “return of premium” nonforfeiture benefit. They pay back to you all or part of the premiums that you paid in if you drop your policy after a certain number of years. This is generally the most expensive type of nonforfeiture benefit. A nonforfeiture benefit can add roughly 10% to 100% to a policy’s cost. How much it adds depends on suck things as your age at the time you bought the policy, the type of nonforfriture benefit, and whether the policy has inflation protection.

You have the option to add a nonforfeiture benefit if you’re buying a tax-qualified policy. The “return of premium” nonforteiture benefit isn’t available in tax-qualified policies, but you may be able to get a “reduced paid-up policy” if you drop the policy. You should consult a tax advisor to see if adding a nonforfeiture benefit would be good for you.

Contingent Nonforteiture. In some states, if you don’t accept the offer of a nonforfeiture benefit, a company is required to provide a “contingent benefit upon lapse.” This means that when your premiums increase to a certain level (based on a table of increases), the “contingent benefit upon lapse” will take effect. For example, if you’re 70 years old and have not accepted the insurance company’s offer of a nonforfeiture benefit, when the premium rises to 40% more than the original premium you will be offered the opportunity to accept one of the “contingent benefits upon lapse,” The benefits offered are: 1) a reduction in the benefits provided by the current policy so that premium costs stay the same; or 2) a conversion of the policy to paid-up status with a shorter benefit period. You may also choose to keep your policy and continue to pay the higher premium.